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Influence of Interest Rates Determinants on the Performance of Commercial Banks in Kenya

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  • Cecilia Maigua
  • Gekara Mouni

Abstract

This study sought to investigate the influence of interest rate determinants on the performance of commercial banks in Kenya. Interest rates are the major economic factors that influence the economic growth in an economy. They can be used to control inflation and to boost economic development. The interest rates determinants that were studied are Inflation Rates, discount rates, Exchange Rate and reserve requirement to determine the influence they have on performance of banks. The target population of the study was all 43 commercial banks operating in Kenya. The sample size was 26 commercial banks obtained from the population. The data analysis technique applied in this study was the multiple regression analysis. The results showed that discount rates, inflation rates and exchange rates had positive influence on performance of commercial banks while reserve requirement ratio had negative influence. The study concluded that higher levels of discount rates, inflation rates and exchange rates lead to higher performance in commercial banks in Kenya, higher levels of reserve requirement ratio result in lower bank performance in Kenya. The study recommends that the Central Bank of Kenya should set base reserve requirements that do not pressurize banks in their operations. This will help grow the banking industry in Kenya and hence develop the economy. Lastly, the study recommends that the commercial banks management should strategize on best way to set up discounts rates for their banks as this will go a long way dictating the borrowing and lending culture of the commercial banks in Kenya and in return enhance their performance.

Suggested Citation

  • Cecilia Maigua & Gekara Mouni, 2016. "Influence of Interest Rates Determinants on the Performance of Commercial Banks in Kenya," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(2), pages 121-133, April.
    • Handle: RePEc:hur:ijaraf:v:6:y:2016:i:2:p:121-133
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    Cited by:

    1. Susan Kerubo Onsongo & Stephen M. A. Muathe & Lucy Wamugo Mwangi, 2020. "Financial Risk and Financial Performance: Evidence and Insights from Commercial and Services Listed Companies in Nairobi Securities Exchange, Kenya," IJFS, MDPI, vol. 8(3), pages 1-15, August.
    2. Oluwarotimi Ayokunnu Owolabi & Ibukun Omoshola Fayemi, 2017. "Effect of Interest Rate Determinants on the Aggregate Performance of Deposit Money Banks in Nigeria’s Banking Sector," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(6), pages 29-41, October.
    3. Wu, Po-Chin & Liu, Shiao-Yen & Zhai, Rui-Xiang, 2018. "Nonlinear impacts of operating risk and demand management policy on banks’ performance: The role of leading indicator," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 40-53.
    4. Morakinyo Akinola & Muller Colette & Sibanda Mabutho, 2018. "Non-Performing Loans, Banking System and Macroeconomy," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 67-86, August.
    5. Ally R. Ally, 2022. "Influence of Macro-Economic Factors on Financial Performance of Commercial Banks in Tanzania," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(7), pages 1-1, July.
    6. Richard M. Kiai & Stephen I. Ng’ang’a & David N. Kiragu & Josphat K. Kinyanjui, 2016. "The Effect of Business Environment on Investment among Financially Included Youth in Kenya," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 109-121, October.

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