Paper Title
Market Interest Rate Fluctuations; Impact On Commercial Banks� Profitability In South Africa

Abstract
Commercial banks are the most important financial intermediary, meeting the basic needs of both lenders and borrowers. In doing this, banks are conscious of the spread between interest income from assets and interest expenses on liabilities, which is called net interest income (interest spread). Interest spread is a major part of banks� profit and is highly exposed to interest rate risk. Interest rate risk is a major concern, as it can cause harm, if not failure to a financial institution. The objectives of this study are, one, to investigate the impact of interest rate risk on the profitability and net-worth of commercial banks in South Africa from 2001 to 2013; and secondlyexamine if economic factors that determine interest rate could have direct effect on banks� profit and net-worth. The analysis is carried out in a panel framework with the Generalized Method of Moments (GMM) for both big and small banks, measured according to banks� asset size as at 2013. The results show that profits of South Africa�s commercial banks are not significantly affected by the changes in repo rate; rather, net-worth is significantly affected during the observed period. Also the economic factors that determine changes in repo rates affect banks� profit and net-worth in South Africa, but uncertainty in the economy has the highest effect compared to other factors considered in the study. The study also found that fluctuations in interest rate affect big and small banks in South Africa differently, which could be attributed to the huge disparity between the banks in terms of asset size. It could be advised that to maximize profit as well as owners� equity, South African commercial banks (big and small) may concentrate more on forecasting and controlling the determinants of the interest rates, rather than the interest rate itself.