Determinants of interest rates spread in the banking sector Kenya
Abstract
The main purpose of the study was to establish the determinants of banking sector interest
rate spreads in Kenya. The study adopted the use of descriptive design. For the research
purpose, secondary data was collected for a 33 year period 1981 to 2013 from the EAC
statistic portal, IMF statistics portal and KNBS database. The secondary data on interest
rate spreads and its determinants namely; Bank Development, Annual Real per capita
GDP, Statutory reserve requirements, Inflation, Exchange Rate Volatility, Government
Borrowing from the Banking Sector, Discount Rate and Treasury Bill Rate were regressed
in a multiple regression model which established statistically significant relationships
between treasury bill rates, reserves and discount rate. The study thus recommends for
policy formulation to protect deposit protection so as to reduce the effect of bank reserve
requirements as a cost to banks which is passed on to the consumers in form of interest rate
spreads. The study further recommends advanced causality and impulse response studies
on the interest rate spreads and its determinants.
Publisher
University of Nairobi