Article Published In Vol.8 (March-April-2020)

Market Interest Rate and Profitability of Listed Commercial Banks in Kenya

Author : Douglas Ragira Oywoki, Dr. Munir Muganda and Dr. Alala Ondiek

Banking sector remains an essential portion of any economy and it is among the main drivers. It is one of the sectors that assists to achieve Kenya`s Vision 2030. Control measures of interest rates in Kenya due to accommodative economic plan with different administration has remained the basis of concern for the banking sector for a long period. A number of research have been performed in regard to the influence of market interest rate control on the income of registered banks within Kenya. However, only few authors have supported exploration on the topic of market terms of interest rates influence viability of listed money-making banks in developing economies particularly in Kenya. It was based on this contextual that this research was carried out. The research intended to scrutinize the influence of market interest rates on viability of listed money-making banks within Kenya. The four particular objectives were; to explore influence of real level of interest on viability of registered commercial banks at NSE in Kenya; to explore the influence of nominal interest rate on profitability of listed money-making banks within Kenya; to find out the influence of interbank level of interest on viability of listed profitmaking banks within Kenya and evaluate the controlling influence of bank size on correlation amid market interest rate and viability of listed commercial banks within Kenya. Longitudinal research design was embraced in this panel data. The scholar targeted eleven listed money-making banks in Kenya. Only listed banks were chosen for this research from 2003 to 2017. Eventually, 165 bank year data was involved in the sample. Data validity and reliability was undertaken to test for accuracy and consistency of the research instruments by involving professionals in finance. Document analysis was used to collect secondary data that related to market interest rate and profitability. Autoregressive distributed lag (ARDL) models were used and outcomes were within reach as depicted on tables and diagrams. The hypotheses testing for real interest rate, nominal interest rate, interbank rate and bank size was below 5% and significant. On the findings real interest rate, interbank rate, nominal interest rate and bank size have positive relationship on viability of listed money-making banks. The researcher found out that the estimated coefficient are positive for real, interbank and size and negative for nominal. It shows that real, interbank and size possess a progressive notable influence on ROA at 10% level whereas nominal has a negative notable influence on ROA at 10% level. The research results show that concentration on market interest rates influence banks’ profitability positively and the influence is relatively significant. The study recommends there is obligation of the government to continuously monitor interest rate levels because it would aid to protect borrowers from exploitation by registered money-making banks at NSE in Kenya. Therefore, listed commercial banks should adopt other avenues for income generation and increase their bank size to be more profitable.

Keywords: Market interest rate, profitability, listed commercial bank in Kenya, bank size