Eric Kinyoti Robert, Jeremiah Koori


In the last ten years (2010 to 2019), non-performing loans in Kenyan commercial banks has been rising. Between the year 2011 and 2018, non-performing loans increased from 4.4 per cent and 12.7 per cent. High interest rates contribute to non-performing loans as they influence the borrowers? capacities to service the loans. However, despite the decrease in interest rates, after introduction of interest rate capping in 2016 non-performing loans have still been increasing. It was therefore essential to examine influence of bank lending rates on non-performing loans in commercial banks in Kenya. The study sought to evaluate moderating effect of central bank rate on association between bank lending rate and non-performing loans. The study was guided by information asymmetry theory. An explanatory research design was adopted. The target population comprised of all 39 commercial banks operating in Kenya that were currently operational. Since the sample size was small (39) a bank census was carried out and duration between 2016 and 2020 was covered in this study. The study used secondary data, which was acquired from Kenyan commercial banks? financial statements and from Central Bank of Kenya supervision reports. Moreover, the study made use of a data extraction tool to collect secondary data. In analysis of data, the study used inferential and also descriptive statistics and all statistical analysis was carried out with the support of STATA version 14. Descriptive statistics comprised of frequency distributions, percentages, mean, variances as well as standard deviation. On the other hand, inferential statistics were carried out using regression analysis. The study found that bank lending rates measured in terms of Commercial banks weighted average rates, has a significant and positive effect on non-performing loans of commercial banks in Kenya. Additionally, central bank rate has a moderating effect on the link between bank lending rates and non-performing loans in commercial banks in Kenya. The study therefore recommends that commercial banks? management in Kenya should develop proper strategies to increase the lending interest rates such as increasing the spread between federal funds rate and the rate that customers are charged by the bank in order to increase the loans? profitability.

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