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Research Paper | Finance | Kenya | Volume 7 Issue 11, November 2018

Effect of Interest Rate Capping Policy on Financial Performance of Commercial Banks in Kenya; Case of Equity Bank Kenya Limited in Nairobi County

Olukoye Benjamin | Dr. Dennis Juma ^[11]

Abstract: Empirical research has over the years shown that there is a strong evidence and a theoretical relationship between interest rates and the way firms perform financially. This study sought to determine the impact of interest rate capping policy on financial performance of commercial banks in Kenya and the main case study was Equity Bank Kenya Limited. The main study used three variables to model the relationship between interest rate capping and financial performance of equity bank. The three specific objectives namely: the effect of capping of interest rate on credit uptake and the performance of the bank, the effect of interest rate capping on banks financial exposure of Equity Bank and the effect on loaning practices on financial performance of Equity Bank were selected. Literature review on the three specific objectives was identified and discussed in detail in chapter two. Descriptive research design was also applied in the study. The target population in the study were 78 employees who comprised of operations managers, credit managers and branch managers of Equity Bank. The mode used for data collection was Questionnaires which were well administered. Finally the data collected was analyzed on SPSS and the report generated was used to explain the findings. The study recommended the following; Equity bank, other banks and policy makers should ensure that lending rates are well stated and follow a well-defined structure in order to improve and have a more progressive effect on the banks financial performance. Exposure to risk brought about by non-performing loans and loan defaulters can also be avoided or mitigated by having in place good loaning practises and policy and also strict and close scrutiny to remove those likely to default. Finally the governments role is greatly needed in terms of policies, regulations and laws to control interest rates capping by Commercial Banks thus spurring economic growth and stability.

Keywords: Interest rate cap, credit uptake, financial exposure, loaning practices

Edition: Volume 7 Issue 11, November 2018,

Pages: 481 - 486

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