High Lending Rates Research Articles

BANKING AND BANKING REFORMS IN CHINA IN A MODEL OF COSTLY STATE VERIFICATION

AbstractWe present a macro view of China's financial system where a monopolistic banking sector coexists endogenously with bonds and private loans. In equilibrium smaller firms raise finance from private lending, larger firms through bank loans, and the largest by issuing bonds. The model predicts that expanding credit supply increases bank loans but reduces bond finance and private lending, in absolute terms and relative to total credit. In addition, removing the interest rate ceiling on bank lending—a recent reform in China—induces larger loans and higher lending rates, lowering the share of bank loans in total credit. Empirical evidence is presented to support these predictions.

Identifying Credit Accessibility Mechanisms for Conservation Agriculture Farmers in Cambodia

As the expected cost of conservation agriculture (CA) inputs becomes an issue for farmers, financial institutions (FIs) play an essential role in promoting CA, a set of agricultural management practices with multiple positive effects. This research aimed to determine influencing factors, to rank challenges, and identify mechanisms for farmers to access agricultural credit for adoption of CA management practices in Cambodia. It was administered by conducting a survey of 242 randomly selected households for face-to-face interviews and conducting key informant interviews from purposive samples of 28 participants in Battambang and Preah Vihear provinces. The results indicated that influencing factors, including the family, adult labor and total farm size, had a positive relationship with farmers’ accessibility to agricultural credit, whereas age was negative. However, education year, farm size for main crops, on-farm income and farm experience were not significantly associated. High interest rates were the significant first-order challenge ranked, followed by document process complication, limited agricultural credit information, limited collateral security and a few other challenges. Support and improved process mechanisms to enhance credit accessibility are required to engage with multiple stakeholders, including farmers, FIs, non-government organizations (NGOs) and government officers. There has been a reduction in agricultural credit interest rates and incentives for importing CA inputs by the government, while provision of information support for agribusiness plans by NGOs which have implemented development project activities were considered as the main support mechanism. An improved process mechanism at the farmers’ level needs to include access to credit with low interest rates and a straightforward documentation process, whereas the FI level requires a business plan for lending decisions. It is evident that high lending rates hinder access to agricultural credit and the improvement of support and improved process mechanisms are necessary to better promote CA practices among farmers in Cambodia.

The Evaluation of Impacts of Multi Factor Model on TTC Stock Price: a Case in Real Estate Industry in Vietnam

Objectives: The objective of this study is to analyze the impact of macroeconomic factors on the stock price of a real estate firm, specifically Thanh Cong TCC, in Vietnam from 2014 to 2020. The study aims to assess both positive and negative influences of five macroeconomic variables on stock prices and to understand the overall business health reflected by stock fluctuations. Methods: This study utilizes a data collection method involving statistics, analysis, synthesis, comparison, and quantitative analysis to generate qualitative comments and discussion. Econometric methods, particularly regression analysis, are employed to evaluate the quantitative results and assess the impact of macroeconomic factors on stock prices. Results: The quantitative research reveals several key findings. Firstly, the stock price of Thanh Cong TCC (Y) exhibits a negative correlation with the lending rate (R) and GDP growth, indicating that higher lending rates and lower GDP growth negatively impact stock prices. Conversely, there is a positive correlation between stock prices and the risk-free rate (Rf), consumer price index (CPI), and VNINDEX, suggesting that these factors positively influence stock prices. Furthermore, the study identifies GDP growth and lending rates as having the highest impact on firm stock prices. Conclusion: In conclusion, this study highlights the importance of considering macroeconomic factors in understanding stock price fluctuations in real estate firms in developing countries like Vietnam. The findings emphasize the significant impact of lending rates and GDP growth on stock prices, indicating their pivotal role in shaping the business health and overall economic conditions. By recognizing these influences, firms like Thanh Cong TCC can better navigate market dynamics and make informed strategic decisions to enhance their performance and resilience in the face of macroeconomic challenges.

Monetary Policy Dynamics and the Nigeria’s Global Competitiveness: The Missing Link

Despite the series of monetary policies adopted by the Nigerian government over time, the (Nigerian) economy in comparison to other countries in the world like South Africa, the USA, Ghana, and the like is still improvised. Still, inconsistency between monetary policy formulation and implementation remains another major issues yet unattended to. It is in this regards that, the current study is dedicated towards examining the effect of monetary policy dynamics and the Nigeria’s global competitiveness from 1992 to 2021 (i.e., 30 years) using Autoregressive Distributed Lag (ARDL) model. The study disclosed that, the variables are integrated at level and first difference while the ARDL Bound test evidenced that, the series cointegrates. Specifically, monetary policy rate has a positive minimal effect on Nigeria’s global competitiveness, while the CRR improved Nigeria’s global competitiveness significantly. However, both lending rates and exchange rates have a significant negative effect on economic competitiveness. Consequently, the paper concludes that both the cash reserve ratio and the Nigeria’s demeaning state are attributed to the high exchange rate (EXR) and high lending rates. Thus, the paper submits that the current monetary policy rates are sustained and that all DMBS should adhere to the stipulated Cash Reserve Ratio (CRR) since it has improved the Nigeria’s global competitiveness significantly. Lastly, the study confirmed that, the missing link is the policy surmount on the part of the Nigerian government.

ANALYSIS OF INTEREST RATE SPREAD ON FINANCIAL RESILIENCE OF QUOTED BANKS IN NIGERIA

This paper examined the effect of interest rate spread (IRS) on financial resilience of quoted Nigerian banks from 2007 to 2021. Specifically, the paper examined the effect of deposit rate, lending rate, and interest rate differential on financial resilience of quoted Nigerian banks. The paper collected data from the CBN bulletin (2021) and Security Exchange Commission (SEC) annual report (2021) and the World Bank data base (2021). The study covered all the twenty one (21) commercial banks quoted in the Nigerian exchange group as of 31st December, 2021 using the census sampling approach. The study reported that, deposit (savings) rate/cost has a positive (coef=0.056833) insignificant (p-value=0.5327.5%) effect on financial resilience (bank z-score) of quoted banks in Nigeria. By extension, deposit (savings) rate/cost has a minimal effect on banks’ financial resilience. However, lending (borrowing) rate/cost interest rate differential (prime lending/borrowing rate/cost less savings/deposit rate/cost) exerted negative (coef= -0.527024&coef= -0.160001 respectively) significant (p-value=0.0001<5% &p-value=0.0194<5%) effect on financial resilience (bank z-score) of quoted banks in Nigeria.Hence, the paper concludes that, high lending rate and interest rate differential reduce financial resilience of quoted Nigerian banks. As such, the study submits that, the apex banks must ensure that, the rising lending rate should be discouraged. This if not cautioned; it has the capacity to reduce the productive capacity of the private sector. Again, to encourage more depositors to invest their depositors’ funds, the ape banks should raise the deposit rate. Lastly, the Nigerian banks are adjourning to keep their interest rate differentials relatively low.
 Keywords: Analysis, Interest Rate Spread, Deposit Rate, Lending Rate, And Interest Rate Differential, Financial Resilience Quoted Banks.

Examining the Impact of Loan Diversification Policy on the Operational Efficiency of Bank of Kigali and Ecobank Rwanda

To mitigate overall loan portfolio risk, commercial banks often turn to diversification strategies. However, the impact of such diversification remains contested among scholars. This study delved into the analysis of the Loan Diversification Policy's influence on the efficiency of Bank of Kigali and Ecobank Rwanda. Employing a mixed-methods approach— both qualitative and quantitative—the study encompassed 191 employees, with a sample size of 66 managers. Data collection utilized questionnaires and annual reports from the banks. Cronbach’s Alpha measured internal tool consistency, yielding a coefficient of 0.861. Analysis involved descriptive and correlational statistics, executed through Statistical Package for Social Sciences (SPSS), with findings presented via charts and tables. Regarding the first objective, among 66 respondents, reasons for risk in the loan portfolio varied: competition among banks (15.2%), global financial crisis (13.6%), currency fluctuation (9.1%), high lending rates (15.2%), loan recovery issues (13.6%), new regulations (12.1%), government policies (9.1%), and declining interest margins (12.1%). Concerning the second objective, factors influencing bank efficiency included education levels (16.7%), experience (22.7%), participation in education programs (19.7%), professional organization memberships (18.2%), training methods (21.2%), and supervision quality (1.5%). Regarding the third objective, the study revealed a significant correlation (99.3%) between the loan diversification policy and commercial bank efficiency, indicating a strong positive relationship. Keywords: Commercial banks, Loan portfolio, Diversification policy, High correlation, Management of banking institutions

Credit as a key driver of sustainability and economic recovery of Ukraine

The study examines the current topic of bank lending in modern Ukrainian conditions. By analyzing the dynamics of credit activity and the financial condition of banks in Ukraine, the work reveals the main problems affecting this sector, such as a large share of non-performing loans, a decrease in the share of long-term loans, and a high lending rate. The conclusions of the work provide recommendations for improving the situation on the lending market in Ukraine. The modern economy of Ukraine is experiencing complex challenges related to the war in Ukraine, which was preceded by the COVID-19 pandemic and the global economic crisis. In this context, the article examines the role of credit as a key driver of economic stability and post-victory recovery. The study is based on the analysis of available data and literature sources, and also uses empirical methods to determine the impact of lending on economic recovery. The article highlights key aspects of lending, such as the role of banks, loan volumes, interest rates and overdue loans. The results of the study emphasize the importance of the development of the financial sector and the promotion of credit availability for enterprises and the population in the context of the economic recovery of Ukraine. The authors provide practical recommendations for the government and regulators to improve the credit environment and stimulate investment activity. This article is aimed at opening discussions and promoting further research into the role of lending in stimulating the economic recovery of Ukraine in the face of today's extremely complex challenges and may be useful for economists, theoreticians and practitioners. The scientific study analyzes how lending can affect the financial stability of Ukraine, in particular, how it can reduce financial risks and contribute to the stability of the economy. The impact of credit availability for various areas and sectors of the economy is considered. The article offers an important contribution to understanding and improving the effectiveness of lending as a tool for the economic recovery of Ukraine, emphasizing the need for a coordinated approach to this issue, taking into account the unique challenges and opportunities that exist at this stage of the country's development.

Observed and expected interest rate pass-through under remarkably high market rates.

This paper investigates the pass-through from observed and expected policy interest rates to the remarkably high lending rates in the Brazilian economy, accounting for financial-institution specific characteristics, borrower types, asymmetric adjustment and persistence in loan rates. We use a unique and non-public dataset with expected variables identified by professional forecasters and apply a fixed-effects approach to alternative specifications as robustness checks. Financial institutions correctly forecast the next target level of the policy rate and anticipate adjustments in their loan rates. There is evidence of over-proportional and positively asymmetric pass-through to loans with higher interest rate margins, implying a positive correlation between degrees of pass-through and spreads across persistent lending rates. These findings contribute to explain why loan interest rates are so high in the Brazilian economy.

The impact of public debt on domestic and foreign direct investments in developing market: An ARDL bounds testing approach

This research investigates the effect of the components of state government debts (domestic and external debts) on the various forms of investment (domestic investment and foreign direct investment — FDI) in Sri Lanka both in the short and long terms applying the ARDL bounds testing approach over the period, 1980–2020. The previous research has revealed that higher internal and external government borrowing lowers domestic investments in both the short and long terms, confirming the crowding-out effect of public debt on the volume of domestic investment of our country. The research discovered that internal debt accumulates FDI inflows in the short term, but it crowds out FDI when considering the long term. In contrast, foreign debt has a substantial inverse connection with FDI inflows in the short term, as expected, but it does not influence FDI in the long run. The findings also showed that higher lending rates of interest share a considerably inverted connection with domestic investments, but it does not have any impact on the long-term FDIs. However, in the short term, an increase in the rate of lending interest rate decreases the prospect of external financiers and crowds out the course of FDI in Sri Lanka. Further, the depreciation of the exchange rate decreases both domestic investment and the flow of FDI in the short-run, but it encourages both types of investments in the long run

The Role of Non-performing Loans for Bank Lending Rates

Abstract Based on bank level data from the euro area, I investigate the role of non-performing loans (NPLs) for lending rates on newly granted loans. The focus is on an effect caused by the stock of NPLs that extends beyond losses that banks have already incorporated into their reported capital positions. The paper assesses the channels through which such an effect occurs. The results indicate that a higher stock of NPLs is associated with higher lending rates. This relation is driven by net NPLs, which constitute the part of NPLs that is not covered by loan loss reserves. Although the stock of NPLs affects banks’ idiosyncratic funding costs as well, the latter do not seem to constitute an important link between the stock of net NPLs and lending behaviour. This is because the relation between idiosyncratic funding costs and lending rates turns out to be rather weak. Furthermore, NPLs do not strongly affect the banks’ interest rate pass-through.

The Effects of Lending Interest Rates on Performance of SMES in Kenya

Small and Medium Enterprises (SMEs) play a vital role in the country’s economic growth through the creation of employment. They also contribute largely to the Gross Domestic Product (GDP) since 98% of businesses in the country are SMEs. Thus, following Kenya’s Vision 2030 there has been a need to protect these enterprises. However, SMEs in Kenya have been faced with numerous challenges which are not limited to affordability of financing options. These enterprises mostly rely on financial institutions for funding, which at times offer unfavorable conditions for bank loans making it hard to access the loans. These challenges hitherto, have caused the failure of these SMEs, because, without capital, operations are minimal. Empirical research has shown that interest rates attached to loans are a major factor SMEs consider when getting loans. High lending rates discourage borrowing since repayment of such loans may take up all of the business proceeds which limits the performance of these enterprises. The study sought to analyze the effect of lending interest rates on the performance of SMEs in Kenya. The study adopted a descriptive research design with a simple linear regression model. The population of the study comprised of small business owners and financial institutions managers in Nairobi Central Business District (CBD). Nairobi CBD is Kenya’s epicenter for business. The study revealed a direct relationship between interest rates and the performance of SMEs. The study recommended the need to restructure bank interest rates to be more ‘consumer-friendly.’ This would encourage SMEs to take up loans that will enable them finance investments and thus improve their performance. Moreover, this would pave the way for job creation which would eliminate the problem of massive unemployment in the country and bring the country closer to realizing Kenya Vision 2030. Keywords: Interest Rate, Financial Institutions, Performance, Small and Medium Enterprises, Lending Rate DOI: 10.7176/EJBM/13-8-15 Publication date: April 30 th 2021

On modelling the determinants of total factor productivity in the MENA region: a macro-micro firm-level evidence

Using the World Bank Enterprise Surveys for Middle Eastern and North Africa (MENA) countries, the paper estimates total factor productivity (TFP) and examines its determinants. Our contribution is twofold. First, we provide TFP estimates by country and sector for the MENA region and examine how TFP varies with firm's age, size, export status, formal status and ownership. Second, we combine both micro (firm-level) and macro (nation-level) determinants of TFP to show how macroeconomic policies can affect firms' productivity levels. Our findings show that among the micro determinants, government ownership, foreign capital, female managers, owning a foreign certification, and formal registration of firms are all positively associated with TFP, with competition also exerting a positive impact on firms' productivity. All the macro determinants on the other hand, with the exception of trade openness, display the expected influence on TFP as suggested by the literature. Longer time to enforce contracts, high tax burden and high lending rates all tend to have a significantly negative impact on TFP. Higher tariffs, however, have a surprisingly positive impact on TFP which may emphasise the adverse effect trade openness can have on TFP as a result of the economy's limited ability to absorb the positive spillovers of trade.

High Lending Rates in Indonesia: Inflation Rates and Bank Inefficiencies

Inefficient banking systems will affect the Indonesian economy resulting in a high lending rate structure which impacts the cost of capital in real sectors. This study aims to determine if the high lending rates in Indonesia are caused by the high inflation rate and bank inefficiencies. Using monthly panel data analysis from four categories of commercial banking in Indonesia for the period January 2009-December 2017, the results of the study show that operating expenses operating income (OEOI) and net interest margin (NIM) factors, as a measure of efficiency, have a positive impact on loan interest rates for working capital loans, investment loans and consumer loans. Furthermore, inflation rate has a positive effect on loan interest rates for working capital and investment loans only. However, this contrasts with consumer credit where the inflation rate has a negative effect on consumer credit rates. This might be attributed to the fact that interest rates for consumer credit consider default risk factors and high demand rather than inflation factors.

Role of Financial Innovation in Enhancing MSMES Access to Credit: An Empirical Investigation on Tanzania

This study assesses the extent to which financial innovations contribute to improving micro small and medium enterprises (MSMEs) access to credit in Tanzania. Information was collected through interviews using a structured questionnaire administered on a sample of 318 respondents. Probit estimates were used for robustness check of the factors that influence MSMEs borrowing behavior.The findings indicate that factors, which influence MSMEs to borrow money through innovative channels, comprise the need for meeting business start-up, operational and expansion costs. Other factors are in respect of ease of access; convenience; short loan process; and a relatively high degree of control of the loan process by the borrower. In contrast to progress made in improving access to financial services by MSMEs, loan access by individuals or businesses through innovative platforms is still low. Only 28.8 percent acknowledged having received loans through innovative platforms, and coefficient on innovation variable was found to be statistically insignificant. Explaining this anomaly include unfavorable terms of loans; high lending rates, inadequate knowledge; small-size loans; and short repayment period. Meanwhile, loan process time, loan size, loan access (distance) have a higher probability of increasing loan access by MSMEs.Therefore, there is a need to intensify measures towards enhancing MSMEs access to credit, taking advantage of available innovative platform channels. Increasing efforts towards reducing credit risk will help to lower the lending rates, while moral suasion measures by financial regulators together with borrowers’ traceable business-record can as well entice loan providers to offer loans of larger size and longer maturity. Meanwhile, capacity building is imperative in enabling MSMEs to acquire requisite business management skills and inculcate record-keeping culture. Equally crucial is enhancing measures towards maintaining the country’s macro-economic stability with a view to boosting demand for credit and improving MSMEs’ loan repayment capabilities.

Twin Deficits Hypothesis as an Indication of Government Failure in Sierra Leone: An Empirical Investigation (1980-2018)

This paper examines the assertion of twin deficit hypothesis as an indication of government (policy) failure in Sierra Leone through the utilisation of relevant variables from 1980 – 2018. The paper is considered very important, with its application to the economy of Sierra Leone, which seems to have battled with structural problems, particularly policy failures, as manifested through over-burdened current account and fiscal deficit, which is presently overshadowing efforts of changedregime to make headway with planned developmental goals. Theoretical and empirical literature was reviewed in relation to the twin deficit hypothesis. Empirical outcome using the Fully Modified Ordinary Least Squares (FMOLS) failed to reject the twin deficit hypothesis; an indication that fiscal deficit is partly responsible for the negative current account position in Sierra Leone. Evidence from the outcome is consistent with expectation for a small open economy [Sierra Leone], burdened with failed institutional governance policies in areas connected with unproductive real sector and high lending rates, considered as disincentive to private sector investments. To address the problem, policy recommendations have been proposed, pointing to a boost in real sector activities – this will help facilitate growth and mobilisation drive to improve domestic revenue collection, also channelled through the Treasury Single Account (TSA) for effective monitoring. Conscious efforts should be made to stepup operations that deter corruption, while firming up efforts to to boost exports through competitive business operations.

INTEREST RATES AND LOAN PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

There has been much speculation about the seemingly high lending rates as evident of perceived inequity on the part of bankers by their customers in reaction to huge overhang of unpaid loans in the books of Deposit Money Banks (DMBs). Data for the study was collected from the financial statements of the three banks under study (UBA, FBN and GTB), as well as the CBN’s statistical database for macroeconomic variables analysed using Microsoft Excel’s regression function to perform a descriptive, correlation and regression analysis and examine the relationship between interest rates and loan repayment. This study established that there is a significant relationship between the interest rate and loan repayment, measured by credit quality using the non-performing loan ratio. This indicates that an increase in the interest rate will likely cause a corresponding increase or decrease in the credit quality. It further showed that any slight change in the lending rate would increase non-performing loan. KEY WORDS: Prime lending rate (PLR); Monetary Policy Rate (MPR); Non-performing Loan (NPL), and loan loss provision.

On Modeling the Determinants of Total Factor Productivity in the MENA Region: A Macro-Micro Firm-Level Evidence

Using the World Bank Enterprise Surveys for Middle Eastern and North Africa (MENA) countries, the paper estimates total factor productivity (TFP) and examines its determinants. Our contribution is twofold. First, we provide TFP estimates by country and sector for the MENA region and examine how TFP varies with firm's age, size, export status, formal status and ownership. Second, we combine both micro (firm-level) and macro (nation-level) determinants of TFP to show how macroeconomic policies can affect firms' productivity levels. Our findings show that among the micro determinants, government ownership, foreign capital, female managers, owning a foreign certification, and formal registration of firms are all positively associated with TFP, with competition also exerting a positive impact on firms' productivity. All the macro determinants on the other hand, with the exception of trade openness, display the expected influence on TFP as suggested by the literature. Longer time to enforce contracts, high tax burden and high lending rates all tend to have a significantly negative impact on TFP. Higher tariffs, however, have a surprisingly positive impact on TFP which may emphasise the adverse effect trade openness can have on TFP as a result of the economy's limited ability to absorb the positive spillovers of trade.

Why are Lending Rates Sticky? Investigating the Asymmetrical Adjustment of Bank Lending Rates in Uganda

ABSTRACT We investigate the drivers of the asymmetrical response of lending rates to changes in the policy rates in Uganda. The analysis is based on panel error correction methods on Ugandan bank-level data over the period 2009–2017. Results confirm that lending rates are sticky downward. The factors associated with the asymmetrical response of interest rates to policy rates include the following: risk, cost, the level of bank capitalization, banking sector concentration, and government borrowing. These results provide new insights necessary for the design of appropriate policy measures to reduce the high and sticky lending rates.

Design and Implementation of Federal Credit and Insurance Programs

The effectiveness and the efficiency of a credit or an insurance program critically depend on the design of the program.In designing a program, the government should carefully consider various factors, including incentives of private parties, possible information advantages of private parties, and competition and liquidity in the target market. Due to failures to reflect these factors in the program design fully, many credit and insurance programs may not be serving their target populations effectively and efficiently. Some partial loan guarantee programs allow private lenders to set the lending rate within a range. In these programs, lenders can increase the profit by lending more to high-risk borrowers who pay a high interest rate. Resulting inefficiencies include underserving of low-risk borrowers, excessive profits for lenders, and excessive costs to the government. Possible solutions include tying the guarantee fee to the lending rate and taking a partial ownership of loans. A main problem with direct loans and full loan guarantees is prepayments by low-risk borrowers. Two main ways to recapture the value of the prepayment option are a prepayment penalty and a high lending rate. The preferable way is a prepayment penalty because a high lending rate may further prompt low-risk borrower to prepay. To finance highly risky activities, such as technology start-ups, the government should take an equity position. Without sharing a few jackpots, the government cannot recoup its investment. Nevertheless, the government takes a debt position in venture capital investments. The consequence is either that the government suffers large losses or that the government fails to finance truly high-risk, high-return projects. In some insurance programs, the government shares risk with private parties in a way that favors private parties. Private insurers have opportunities to take advantage of mispricing of insurance policies. Policyholders underpay during good times, but they don't necessarily make up the underpayment during bad times. An efficient way of sharing risk is that the government bears all of catastrophic risk and let private insurers bear policy-specific risk. The government implicitly guarantees GSE debts. Since GSEs have incentive to take excessive risk, the government is providing a very expensive guarantee free of charge. An explicit guarantee made available to both GSEs and private entities at a fee should lower the cost to the government, make the market more competitive, and contain financial crises effectively. For proper budget discipline and efficient management, it is important to estimate the costs of credit programs accurately. The cost estimation for credit programs has two main steps: estimating future cashflows and discounting future cashflows to arrive at the net present value of cashflows. Some models estimating future cashflows do not fully consider the effects of economic fluctuations. The consequence can be a systematic underestimation of the cost of a credit program. Some also argue that discounting uncertain cashflows with Treasury rates leads to an underestimation of the cost to taxpayers by ignoring the risk premium. This argument is off the mark. Discounting with Treasury rates is appropriate, considering that budgeting is more about accounting accuracy than economic optimization and that the costs of other government programs do not include the risk premium. The focus should be on estimating cashflows more accurately, fully taking into account the possibilities of extraordinary losses cause by economic downturns.

Estimation of profitability of operating activity in industrial enterprises of Ukraine in the conditions of external environmental

The article analyses the specifics of the functioning of industrial enterprises and examines the problems of growth of profitability in modern economic conditions. The important role of industry for the development of the state economy has been determined. The level of the unprofitableness of industrial enterprises, expenses of operational activity has been analysed. For a more informative idea of ​​the current state of operational activity of industrial enterprises in Ukraine, an analysis of operational profitability indicators for a certain period has been conducted. To determine the reasons for changes in profitability and the identification of factors of influence, a factor analysis of the profitability of production has been conducted on an example of JSC “Motor Sich.” The results of the analysis have been grouped by factors of influence on the level of profitability of operating activities of industrial enterprises. The main factors of influence include: low competitiveness of enterprises; deterioration in the quality of industrial products; wear of equipment; high level of tax pressure; high lending rates; increase in the cost price of products and decrease sales volumes; shortage of working capital and fixed assets; change in the share of profit for 1 hryvnia of sold products. It has been determined that decrease of profitability of operational activity of mechanical engineering enterprises is caused by a number of reasons: absence of investment capital; mismatch of production capacities of market potential and low level of their loading; rise in price of external financial resources; decrease in demand for products; the unity of the production process; failures in the supply of raw materials and materials; lack of financial support; ineffectiveness of the marketing department; rise in price of external financial resources. It has been determined that the decrease of operating profitability indicators of the enterprises of mechanical engineering of Zaporizhzhia region is due to: loss of market sales; high material production of machine building products; depreciation of fixed assets; decrease in the level of solvency of commodity producers; decrease of output; reduction of domestic demand for domestic products; an increase in the level of debt; unsecured high-quality materials. According to the results of the research of indicators of profitability of operational activity of enterprises of the industrial sector, ways of increasing the analysed indicators have been formed: withdrawal from production of low-profitable products; concentration of production on highly profitable products; revision of tax rates for industrial enterprises; attraction of foreign investors; reconstruction of material and technical base of production and introduction of new technologies; introduction of effective financial management.