The Effect of Financial Repression on the Financial Performance of Commercial Banks in Kenya

Abstract

The study focused on evaluation of the influence of financial repression on financial performance of Kenyan commercial banks. The study used interest rate cap, government debt and cash reserve requirements as the independent variables. Return on assets was used as the depended variable in the current study. The research was guided by the free market theory, public policy theory and public finance theory. The research utilized a descriptive research design and it considered data from 2001 to 2021 for the all the commercial banks in Kenya. The research was a census study because it involved all the commercial banks operating in Kenya. The data utilized in the research was collected from the CBK's annual survey report, bank annual reports of financial statements, and Kenyan bank websites. A linear regression analysis model was employed to evaluate the data. According to the study's findings, there is a weak but significant relationship between financial repression and financial performance. The results also showed that government debt has a positive impact on Kenyan commercial banks' financial performance. Moreover, the study's findings indicate a negative relationship between cash reserve requirements, interest rate caps, and the financial performance of commercial banks. The study recommends that the government and policy makers should not focus on interest rate cap and government debt to improve the financial performance of the commercial banks in Kenya because the variables have a weak relationship. The research also recommended policymakers and government to lower the cash reserve requirements to improve the financial performance of banks because it had a significant impact.