INFLUENCE OF FINANCIAL EXPOSURE DURING INTEREST RATE CONTROL ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Abstract
Financial risk exposure impacts on the value of financial firms through changes in cash flows generated by operations, which arise due to interest rate risk exposure direct effect on the cost of capital. In addition, there may be indirect effects of interest rate risk exposure on the competitive position of firms, impacting also on their expected cash flows. Finally, interest rate risk exposure may influence firms’ value due to changes in the value of their financial assets and liabilities. Therefore, this study sought to establish the effect of financial risk exposure during interest rate control on financial performance of financial institution in Kakamega County. The study was guided by extreme value theory. Longitudinal research design was used in this study. The study targeted commercial banks in Kenya. Purposive sampling was used to sample commercial banks based on published financial data within study period. The secondary data was collected from audited financial records of commercial banks in Kenya. Panel data was analyzed using inferential statistics which involved testing of hypotheses with help of STATA 15. Inferential analysis was linear regression analysis and correlation analysis. Descriptive analysis such mean and standard deviation was also utilized. The data was presented in form of tables, graphs and models. The results revealed that increase in financial risk exposure and financial risk during interest rate control would results to significant reduction in financial performance of commercial banks in Kenya. The study therefore concluded that financial risk exposure during interest rate control has significant influence on financial performance of commercial banks in Kenya. The study recommended that financial exposure that banks face from risky customers can be reduced by improving on the loaning practices of the bank and closer scrutiny to weed out those likely to default during interest rate control.
Key Words; Interest Rate Control, Financial performance, financial risk exposure, Commercial Banks
CITATION: Otieno, F. O. & Onaya, F. O. (2020). Influence of financial exposure during interest rate control on financial performance of commercial banks in Kenya. The Strategic Journal of Business & Change Management, 7 (4), 1378 – 1388.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i4.1865
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