Relationship Between Interest Rates Spread and Financial Performance of Commercial Banks in Kenya
Abstract
The banking society in Kenya has experienced regulatory changes for the last five years.
The regulatory guidelines are based on interest rates of credit facilitates and deposits
interest rates in which a regulated by the interest rate bill 2014 and interest rate bill 2016
through an act of parliament. The bill restricts all commercial banks and other financial
institutions to charge interest rate not exceeding 4.00% more than CBK lending rates which
stands at 10.00% by August 2016. All financial institutions are in a milestone to maximize
on profitability and reduce the operational expenses by considering the interest rates
spread. The aim of the study was to establish the relationship between interests spread on
Kenya commercial banks financial performance. The population of the study constituents
of 43 commercial banks in Kenya although two of the banks where under liquidation
(Chase and Imperial Bank) and data was collected from CBK bank survey reports and
KNBS economic growth reports from 2008 to 2015. Data analysis was done using SPSS
(Statistical Package for Social Science) and presented using tables. All variables regression
analysis was done to establish the relationship between the interest rate spread and the
performance of commercial banks in Kenya. From the study, it was established that there
was significant positive relationship between interest rate spread and financial profitability
on operational performance among the licensed commercial banks. Increase of loan
disbursement on investors is affected by the interest rate spread which contributes to asset
growth and profitability. The study recommends that the regulatory of the banks (CBK)
develop monetary policies and guidelines to regulate the interest rates on loans and deposits
in order to protect the borrowers from exploitation by the commercial banks.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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