INFLUENCE OF CREDIT UPTAKE ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA
Abstract
Kenya being a developing nation, many residents rely on financial borrowing from financial institutions to enable them run their businesses and meet other financial obligation. This can only be sustained if the interest rates charged on the borrowed funds are low. Due to competitive market most financial institutions could raise their interest rates. This was recently put into control by central bank of Kenya by imposing fixed interest rates to all commercial banks. This regulation came with both positive and more so negative effects to the financial institutions. Some of the commercial banks have reported drops in income generation from loans and other credits. Therefore, this study sought to examine effect of credit uptake on financial performance of commercial banks in Kenya. The study was guided by loanable funds 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 as well as does which are not under receivership or statutory management. 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 multiple 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 credit uptake and financial risk during interest rate control would results to reduction in financial performance of commercial banks in Kenya. The study therefore concluded that interest rate control has significant influence on financial performance of commercial banks in Kenya. The study therefore recommended that the central bank of Kenya should opt for long term solutions to resolve the issue of money supply as the use of interest rate control is detrimental to credit uptake by customers from the commercial banks evidenced by the continued decline in the loan growth and an increase in the non-performing loans.
Key Words; Interest Rate Control, Financial performance, Credit Uptake, Commercial Banks
CITATION: Onaya, F. O., & Maniagi, M. (2020). Influence of credit uptake on financial performance of Commercial Banks in Kenya. The Strategic Journal of Business & Change Management, 7(3), 948 – 959.
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DOI: http://dx.doi.org/10.61426/sjbcm.v7i3.1718
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