Interest Rates and Commercial Bank Profitability in Kenya.

Abstract

The main purpose of the research was to investigate the effect of interest rates on commercial banks profitability and performance in Kenya. Recent movements in interest rates, inflation and exchange rates present real dangers to economic stability. Between 2011 and 2015, commercial banks in Kenya continued to report increases in profit and incidentally, this coincided with the increase interest rates. The study that was done was descriptive in nature and was based on historical data from commercial bank annual financial reports, central bank reports and information provided on the Kenya bankers association website. The research was done using statistical methods and testing techniques like correlation and regression analysis. The finds were that indeed interest rates had a positive correlation with bank performance in Kenya. Basically all other factors remaining constant, the higher the interest rates, the better the financial performance of commercial banks.