INVESTIGATING THE EFFECTS OF MACROECONOMIC DETERMINANTS ON BANK INTEREST RATE SPREADS OF COMMERCIAL BANKS IN KENYA
Abstract
This study sought to determine the effect of macroeconomic determinants on interest rate spread. The study contributed to the literature on the effects of macroeconomic determinants on interest rate spreads of Commercial Banks in Kenya. This study adopted qualitative research design in assessing the effects of macroeconomic determinants on interest rate spreads of Commercial Banks in Kenya. The study targeted all Commercial Banks in Kenya but the sample size constituted 12 commercial banks in Kenya. Proportionate sampling technique was employed. Data for the study was obtained from Central Bank of Kenya reports, CBK Annual Supervisory reports, Annual Reports of the Commercial Banks and audited financial statements of the sampled banks. Descriptive statistics was used to state the means of the variables over a 5 year period under study. Correlation analysis was used to examine if there was any relationship or degree of association between macroeconomic determinants and bank interest rate spreads of commercial banks in Kenya. A multivariate regression model was used to determine the extent to which macroeconomic determinants determine interest rate spread of commercial banks in Kenya. The study found positive relationship between the predictor variables (real GDP, inflation rate and central bank rate) and dependent variable (Interest Rate Spreads). However, it was found that a strong positive and significant relationship existed between inflation rate and interest rate spread within commercial banks of Kenya. The study found that Kenya’s medium commercial banks interest spread were affected most by macroeconomic variables than large and small banks. The study recommended that inflation should be curbed in order to have a positive influence (reduction) on interest rate spread.
Key Words: Real GDP, Inflation Rate, Interest Rate, Central Bank Rate
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DOI: http://dx.doi.org/10.61426/sjbcm.v4i3.537
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