A Survey of Hedging Practices Against Interest Rate Risk of Commercial Banks in Kenya

Abstract

This study was on survey of hedging against interest rate risk practices of commercial banks in Kenya. Data was collected by use of a questionnaire and was analysed by use of excel and descriptive statistics. The results were tabulated in the form of frequencies and percentages. The research revealed that all except one bank have a hedging programe in place. The hedging practices identified include; Forward Rate Agreements (FRAs) are quite popular with multinational banks, Interest Rate Swaps, Cross Currency Swaps and Swapoptions. No bank in Kenya has either Floors and caps or Interest rate collars as hedging tool. It was further found out that in Kenya, the primary commercial motives that motivate the banks to put a hedging programe in place are reduction of financial distress, increasing of competitive advantage, increasing internal contracting capacity and the desire to comply with the corporate bank investment policy.