Chapter One — 1.1 Background to the Study

Interest Rate Volatility has increasingly attracted the attention of researchers, regulators, and practitioners concerned with profitability of deposit money banks. This growing interest reflects the recognition that interest rate volatility does not operate in isolation, but interacts with a wider set of institutional and market conditions found within Edo State.

Edo State presents a useful setting for examining this relationship precisely because the conditions there — structural, regulatory, and behavioural — differ from those typically assumed in the broader literature, most of which draws on evidence from more developed economies.

1.2 Statement of the Problem

While interest rate volatility is widely discussed in policy and industry circles, empirical evidence on its actual effect on profitability of deposit money banks within Edo State remains sparse and, in places, contradictory. This lack of localized, rigorous evidence makes it difficult for decision-makers to know with confidence whether current approaches to interest rate volatility are helping or hindering profitability of deposit money banks — a gap this study sets out to close.

1.3 Objectives of the Study

1. To examine the effect of Interest Rate Volatility on profitability of deposit money banks in Edo State.
2. To assess the extent to which interest rate volatility influences profitability of deposit money banks within the study area.
3. To identify the challenges associated with interest rate volatility in relation to profitability of deposit money banks.
4. To recommend strategies for optimizing interest rate volatility in order to improve profitability of deposit money banks.

1.4 Research Questions

1. What is the effect of interest rate volatility on profitability of deposit money banks in Edo State?
2. To what extent does interest rate volatility influence profitability of deposit money banks within the study area?
3. What challenges are associated with interest rate volatility in relation to profitability of deposit money banks?
4. What strategies can be adopted to optimize interest rate volatility in order to improve profitability of deposit money banks?

1.5 Significance of the Study

This study is significant to a range of stakeholders. For policymakers and regulators, the findings offer evidence to guide the design of frameworks that support healthier outcomes around profitability of deposit money banks. For managers and practitioners within Edo State, the study provides practical insight into how interest rate volatility can be better managed. Finally, it contributes to the academic literature on finance / banking by extending existing knowledge into a specific empirical context, and offers a reference point for future researchers.

1.6 Scope of the Study

In terms of scope, this study confines itself to Edo State, focusing specifically on how interest rate volatility relates to profitability of deposit money banks within that setting. Findings are interpreted within these boundaries rather than as universal claims applicable to every organization or market.