The Relationship Between Interest Rates and Non Per-forming Loans in Commercial Banks in Kenya

Abstract

Kenya has experienced a rising interest rate regime over the past few years. As a results, com-mercial banks have continued to increase the rate of interest charge on facilities taken with them .Those taking new facilities together with those already having a facility have had to content with additional funds demanded by banks inform of increased monthly installments .The public outcry has been loud and the government have been urged to intervene in many instances. The aim of this research therefore was to determine if there exists a relationship between interest rate and the level of non-performing loans as reflected in the books of the various commercial banks in Kenya. The researcher wanted to find out how the loanees had been affected by the increased installments arising from the interest rate change. The study involved collecting financial statements for the various banks and analyzing them to determine if there is any relationship between interest rates and non-performing loans. As a consequent, data for the past five years (2007-2011) was analyzed with the help of SPSS statis-tical software and the results presented in form of correlations, regression and coefficients. Test of significance were further carried out. The results showed that there was no significant relationship between interest rate and non-performing loans in commercial banks in Kenya. For academia, the researcher recommends a research which takes into account all variables that affects Non-Performing loans and deter-mines which one among them is the most significant.