The effect of interest rates spread and management efficiency on the growth of lending among commercial banks in Kenya
Abstract
Despite the liberalization of the financial sector, high interest rate spreads is still an issue of
concern in a number of African countries, including Kenya. Commercial banks set interest
rate levels for deposits and loans which has resulted to widened interest rates spread over the
years. Interest rates charged to borrowers remain relatively high compared to interest rates
earned by the savers. Excessive interest rates discourages potential borrowers which limits
the level of growth on lending and increases the level of non-performing assets due to high
level of default. Management of commercial banks have concentrated their efforts in
managing the operational costs other than focusing on how to bring down the lending rates to
merge with deposit rates. This study sought to establish the effects of interest rates spread and
management efficiency on growth of lending among commercial banks in Kenya. The target
population in this study is all 43 commercial banks in Kenya. Data is collected from central
banks supervision report and published financial statements of various commercial banks.
The data collected was analyzed using SPSS (Statistical Package for Social Scientists).
Regression analysis was used to analyze the data and find out whether exists a relationship
between interest rates spread and management efficiency on growth of lending among
commercial banks in Kenya. The study established strong positive relationship between
growth on lending among commercial banks with interest rates spread and management
efficiency. The study found variables are significance to influencing growth on lending. The
study found that interest rate spreads affects the growth of lending as increases the cost of
borrowing and the level of non-performing assets of the bank. The study recommends that the
government should regulate the interest rates by setting a bench mark rate to be charged by
commercial banks.
Citation
Master Of Business AdminstrationPublisher
University of Nairobi