Effects of Interest Rate Capping on Performance of Commercial Banks in Kenya
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Date
2018Author
Amuhinda, Rebecca A
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The rate of interest charged on loans and advances which makes banks earn interest
income and the rate of interest paid to depositors, which translates to the cost of funds
both have a significant impact on the performance of any commercial bank. This study
sought to determine the effects of interest rate capping on performance of commercial
banks in Kenya. The capping law took effect on 14th September 2016 as a result of the
numerous issues raised by the public with regard to the cost of credit. The law stipulates
that the lowest rate banks can offer on deposits is 70% of the CBR and the lending rate at
4% above the CBR. This study had three specific objectives: To establish the effect of
interest rate capping on credit uptake performance of commercial banks in Kenya; To
identify the effect of interest rate capping on profitability of commercial banks in Kenya;
To investigate the effect of interest rate capping on the portfolio of non-performing loans
on commercial banks in Kenya. The descriptive research design was utilized in the study.
The study targeted the 36 licensed commercial banks out of the 43 registered ones,
leaving out 6 commercial banks which are either acquired by other banks, under
receivership or statutory management. Secondary data capturing the performance of the
commercial banks over the period 2015-2017 was obtained from published financial
statements, CBK publications and journals, World Bank Journals and relevant
Government Ministries. The data obtained from the study environment was analyzed
through descriptive statistics and inferential statistics by use of SPSS version 16. The
findings of the study established that credit uptake increased following the introduction of
the capping law. This was mainly due to issuance of loans to large borrowers. The
profitability of the banks in the period under review increased. In addition, the non
performing loans portfolio also increased. The study concluded that interest rate capping
positively affects performance of commercial banks. The study recommends that the
Central bank and the Government through the ministry of Finance should come up with
policies that benefit banks, large and small borrowers.
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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