Commercial banks exposure to interest rate risk: a study of commercial banks listed at the Nairobi Stock Exchange
Abstract
The aim of this study was to establish the relationship of commercial banks exposure
to interest rate risk and their performance (stock returns). In achieving this, the study
applied historical data for the monthly average closing share prices for each of the
eight listed banks; the monthly averages for the 91-day Treasury bill rates; and the
monthly coupon rates for the 10-year Bond. The data was obtained from the Central
Bank of Kenya and the Nairobi Stock Exchange. The study was based on the null
hypothesis that the banks‟ stocks returns are not sensitive to the fluctuations in interest
rates. The key tests that were applied revealed that a single augmented-market model
was significant to all the 8 banks in establishing the relationship of their exposure to
interest rate risk and their performance (stock returns), as opposed to eight separate
bank-specific models