| dc.description.abstract | T
The objective of the study was to examine the determinants of commercial bank interest rate
spreads in Kenya. The research was carried out among the 42 commercial banks in Kenya. This
research was necessitated by the fact that interest rate spreads are relatively high even after the
liberalization of the interest rates in July 1990.The aim of this study was to investigate the levels
and trends in interest rate spreads, to document the key macroeconomic and market determinants
of interest rate spreads and to provide policy options that would help to narrow the interest rate
spreads so as to enhance the efficiency of the Banking Sector and hence economic growth and
development of Kenya. In particular, the study investigated the effects of inflation rate, cash
requirement reserve and the central bank discount rate on interest rate spreads. Since the number
of banks is not so large, all the 42 commercial banks were targeted in the study. Secondary data
was used in this study which was collected from annual reports (monthly) of the 42 commercial
banks for the 8 year period between 2007 and 2014. The study found that the model accounted
for 66.59% of the variance in interest rate spread of the commercial banks R2= 0.6659. The Fstatistic of 60.4579 was significant at 5% level of significance, p = 1.37E-21. This shows that the
model was fit to explain the effect of inflation rate on the interest rate spread. The results showed
that inflation rate had a weak positive effect on interest rate spread of the commercial banks
which was insignificant at 5% significance level while cash requirement reserve and discount
rate had positive effects which were significant at 5% significance level. The study therefore
concludes that inflation rate does but insignificantly influence the interest rate spread of the
commercial banks. The study recommends that other factors that influence the interest rates of
commercial banks be used in order to ensure that commercial banks set optimal interest rate
spreads. | en_US |
