Trend Impact Analysis of Interest Rate Cap on Profitability of Commercial Banks in Kenya

Abstract

For many years, the cost of borrowing and lending money in Kenya was left to the forces of supply and demand. The coming into force of the Banking (Amendment) Act, 2016 marked the end of operation of these forces. This caused ripples within the banking sector with bankers arguing that it as a wrong move, leading to its subsequent lifting in late 2019. This study, therefore, sought to determine the trend impact analysis of Interest rate cap on profitability of commercial banks in Kenya. This study adopted a longitudinal research design where secondary data was collected with the help of a data extraction form from all the 42 commercial banks licensed and operating in Kenya for the years 2014-2021. The researcher used Microsoft-excel 2021 and STATA to process the data collected. Data was analyzed using trend impact analysis regression analysis and results presented using tables and figures. The findings revealed that profitability overall mean for all the banks for all the years combined were 0.43 with a standard deviation of 0.25. The beta coefficients for profitability, was found to be 0.678 and the p-values of the t-statistics for the coefficients estimated was found to be 0.000,. The study concludes that profitability was impacted by interest rate cap and that the overall impact was a negative trend on interest rate cap of commercial banks in Kenya. The study recommends that; there is need for central banks to review their policy so that commercial banks can enjoy free market and hence make profit.