The Effect of Lending Interest Rates on Financial Performance of Commercial Banks in Kenya
Abstract
Accepting deposits, advancing loans and providing investment products are among the functions commercial banks are tasked to provide in its operations. However, lending is the main practice that sustains the banking sector. Through lending practices, commercial banks are able to achieve its main objective which is to realize profits. Given that this practice is the backbone of banking operation, banks need to understand the sensitivity of lending practices and its impact since any imperfection in administering the service can harm its financial performance. The objective of his research was to determine the effect of lending interest rates on financial performance of Commercial Banks in Kenya. This study employed descriptive. Published statement of accounts which falls under secondary data was put to use. Statement of Financial Position of commercial banks from 2012 to 2016 was used to collect the secondary data. Descriptive and inferential statistics were utilized particularly using correlation, chi-square tests, regression and ANOVA to ascertain the significance fitness of the model and also to establish the link between financial performances with lending interest rates in Commercial banks in Kenya. The research findings indicate that that improvement in all aspects of increase in lending interest rates enhances commercial bank’s financial performance in Kenya. The findings indicated a strong positive correlation between return on equity and the lending interest rate. This implies that an increase in the interest charged on loan results in a proportional increase on return on equity in commercial banks in Kenya. There was strong negative correlation between operating expenses and interest rate charged. This therefore implies that an increase in interest charged results in improved financial performance due to increase in operating income. The findings indicate that there was a strong positive correlation between management efficiency and the lending interest rate. This implies that an increase in the interest charged on loan results in increase on management efficiency in commercial banks in Kenya
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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