Determinants of Average Lending Rates among Selected Commercial Banks in Kenya

ARTICLE INFO ABSTRACT This study sought to investigate the effect of bank characteristics on lending rates among commercial banks in Kenya. Specifically the study sought to; establish the effect of bank size, credit risk, and liquidity risk, operating costs, on lending rates among commercial banks in Kenya. The research philosophy for this research was positivism. Explanatory non-experimental research design was employed. The target population was thirty nine (39) commercial banks from whom secondary data was collected by way of census since these are the banks from which complete information could be obtained for meaningful analysis for the study period 2006-2015. Descriptive Statistics including Mean, Standard deviation, inferential statistics (Panel regression analysis and Correlation analysis) were carried out. Data analysis was run on the Stata 13 package and findings presented in figures, tables, graphs and charts while deriving conclusions and recommendations from the findings of the study. The finding revealed that bank size, operating costs, had positive and significant effects on lending rates. However the effect of GDP growth rate and bank size was found to be negative. The finding further showed that the effects of credit risk and liquidity risk on lending rates was positive but insignificant. Based on the findings, the study concluded that bank characteristics play a significant role in determining the lending rates of commercial banks. The study recommends that individuals wishing to take mortgages home equity loans, car loans, and personal loans from commercial banks should consider the size of the banks, its market share and other internal factors to identify the most competitive banks in terms of lending rates.

The International Journal of Business & Management

The paramount significance of a robust banking sector in driving economic growth, executing effective monetary policies, and upholding macroeconomic stability cannot be overstated. This study was centered on discerning the influence of lending interest rates on the financial performance of Kenya's commercial banks from 2015 to 2022. Employing a moderated multiple regression methodology, secondary balanced panel data encompassing 27 mortgage-offering commercial banks and 189 data points were scrutinized. The results of the regression analysis divulged that the autonomous variables explicated a substantial 86.69% (R2=0.8669, p=0.0020) variance in the financial performance of these Kenyan commercial banks. Notably, the coefficient of lending rate manifested as -0.158824, underlining a statistically significant (p=0.0020) association. Consequently, the null hypothesis was invalidated. The research concludes that lending interest rates exert a substantial and adverse impact on the fi...

The success of a commercial bank depends on income and value of its assets (loans). This study focused on interest rates and their effect on performance of the commercial banks in Kenya. Descriptive research design was adopted with a target population of 153 respondents from the credit departments. Stratified random sampling was used to select a sample of 111 respondents who were administered with a structured questionnaire. The collected data was collated and coded for descriptive and inferential analyses using the Statistical Package for Social Sciences version 23. Findings revealed that Central bank (CBK) policies affect the interest rates charged (mean 4.23), interest rates charged vary depending on repayment period (mean 3.85), higher portfolio at risk (PAR) increases the number of NPLs (mean 3.77) and increased interest income promotes high performance by banks (mean 3.94).There was a statistically significant relationship between interest rates, loan provision and performance of commercial banks. The study recommended that commercial banks should effectively respond to CBK interest rate policies, minimize number of bad loans and strive to maintain low PAR.

Research Journal of Finance and Accounting, 2021

The first specific objective was to determine the relationship between credit risk management and financial performance of commercial banks in Kenya. The second specific objective was to determine the effect of interest rate regulation on the relationship between loan lending policies and financial performance of commercial banks in Kenya. The study used descriptive research design and the research philosophy used was positivism. The study adopted a census survey and purposive sampling method targeting 43 bank managers, 43 credit managers and 43 operations managers of the 43 commercial banks in Kenya for period 2013 to 2018. Document analysis guide was used to collect secondary quantitative data for period 2013 to 2018 from the commercial bank's financial reports and questionnaires were used to collect primary data. The questionnaires which were administered to the respondents were structured. Content validity was used to determine the validity of the instruments. Data was analyzed using multiple linear regression method. The findings of the study revealed that loan lending policies; credit risk management measured by (non-performing loans and debt collection costs) have a significant and negative impact on ROA of commercial banks in Kenya. The study findings revealed that there exists a relationship between interest rate regulation, loan lending policies and financial performance of commercial banks. The study recommended that commercial banks should strengthen its loan lending procedures, use the services of Credit Reference Bureau, train credit officers on how to scrutinize customers and give out loans which have collateral security only.

2018

A research project submitted to the school of business in partial fulfillment of the requirement of the award of degree in master of business administration in finance Kenyatta University July, 2018

Bank lending which are guidelines and procedures put in place for employees to observe in granting loan assets has become a vital function of the commercial banks because of its direct effect and impact on economic growth, business development and commercial banks' financial performance. This paper analyzes the influence of loan lending policies on financial performance of commercial banks in Kenya. For this, a descriptive research design is adopted. Data of 18 selected commercial banks in Kisii town is used. Pearson's correlation analysis and multiple regression models were used to establish the relationship between loan lending policies and financial performance. The study finds a positive relationship between commercial banks' financial performance and loan lending policies. Moreover, banking sector regulation policies, competition and technology also have significant effects on the banks' financial performance. Based on the key findings from the study it is concl...

STUDIES AND SCIENTIFIC RESEARCHES. ECONOMICS EDITION, 2018

The study sought to establish the relationship between capped lending rate and non-performing loans among the listed commercial banks in Kenya. The secondary data for the study was collected from 2013-2017. The research tested the null hypotheses that capped lending rate has no significant relationship on non-performing loans of the listed commercial banks in Kenya. The study adopted descriptive research design to test the null hypotheses. The study found out that the capped lending rate has positively influenced the non-performing loans of the listed commercial banks in Kenya. The study therefore concludes that capped lending rate has helped in improving non-performing loans of the listed commercial banks in Kenya. The study recommends that listed commercial banks in Kenya should make efforts to improve capped lending rate because it has been found to have a positive effect on non-performing loans of the listed commercial banks in Kenya. The study will be of help to the banking sector, Central Bank of Kenya and other policy makers aligned to the financial institutions.

2017

Lending policy is a word that used by bank employees to as a determinant of rejecting or granting loan request. Loan performance of most commercial banks in Kisii County, Kenya reveals that there is a challenge to the banking sector; the acceptance of loan reports of performance is unclear on to what extent they affect lending policies and there links to certain commercial banks. This paper analyzes the effect of lending policies on loan performance of selected commercial banks operating in Kisii County. The research used descriptive survey approach because the units of more than one and their operational features were not the same because of varying situations of the respondents. In response rate, a target population size was 270 employees and a sample size of 244 was usable in the study representing 36.4% of population size. The paper used s content validity as it measures the magnitude of validity of a content to for which the sample of the sample of the items’ representation was...

The purpose of study was to examine the effect of lending policies on profitability of commercial banks in Nakuru town in Kenya. The objectives were; to examine the effect of loan terms, and credit risk on the profitability of the aforementioned banks. Census method of research was administered thus each and every item in the population was selected. The study employed a structured questionnaire to collect primary data. Secondary data was collected using documents analysis guide. The data collected was be analyzed using both descriptive and inferential statistics. Descriptive statistics involved the use of frequencies, percentages, means, standard deviations, and correlation analysis. Inferential statistics involved the use of regression analysis, and the results were tested at 95% confidence level. The study was expected to be informative to policy makers and practitioners in the banking sector particularly in reference to lending policies and how to improve the profitability of commercial banks. The study also revealed that lending policies are based on credit policy is set from central bank. The findings indicated that maturing premium was rarely considered when determining lending rates, and inflation largely on lending rates.

Interest rate spreads (IRS) are a common measure of financial market. It is worth noting that there is a conspicuous disparity in IRS amongst the various commercial banks in Kenya and specifically on unsecured loans. Though there have been extensive research studies on IRS, the effect of risk factors on disparities in IRS, nevertheless, has not sufficiently been researched. The objective of the study was to establish the effect of risk factors on IRS disparity for unsecured loans. The population of the study comprised of the 46 commercial banks in Kenya. The target population constituted accounting, credit and management staff of commercial banks within Nakuru town. The study adopted descriptive research design. Structured questionnaires were used to collect primary data while the secondary data was collected through the analysis of the Central Bank of Kenya's Reports and targeted commercial banks' published financial statements. The SPSS was used to process and analyze the ...