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