Determinants Of Loan Pricing Of Commercial Banks In Kenya

Abstract

This study therefore aimed at investigating the determinants of loan pricing on commercial banks in Kenya for 2011 – 2015 period using quantitative survey design. Secondary data was collected from the audited financial reports of sampled commercial banks for the period between 2011 and 2015. By this the study aimed at examining how macroeconomic variables and bank specific characteristics influence the average lending rates on loans charged by commercial banks. The key finding of the study was that good performance in the bank specific characteristics mainly the levels of capitalization, deposits mobilization and increased bank reserves significantly contribute in lowering the cost of loans. Moreover, the macroeconomic environment within which the commercial banks operate is core in influencing the price of the loan. A rise in the cost of living as measured by inflation as well as the weakening of the local currency relative to other world hard currencies contribute to high price of loans. Therefore, the study recommends that the regulator mainly the Central Bank to be execute necessary demand management policies that aim at anchoring inflation while at the same time ensuring stability in the forex market. This will go long way in impacting the level of deposit mobilization as well as the amount of reserves at the banks’ disposal for lending and ultimately affecting the price of loans.