The relationship between lending rate and non performing loans in commercial banks in Kenya

Abstract

Kenya has experienced high lending rate regime over the past years by commercial. The craving for higher profits by commercial has lead to this unending debate about lending rates charged on loans and advances. 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 repayment. The public outcry has been loud, resulting serious legal battles between borrowers and commercial banks. The central bank has been urged to intervene in many instances as the public feels that banks are overcharging lending rates on borrowed funds and thus forcing them to be unable to repay their loans on time. The above problem has lead to the rise of none performing loans in commercial banks making banks to declare huge losses. 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 Borrower has been affected by the increased installments arising from the lending 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 (2009-2013) was analyzed with the help of SPSS statistical 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 lending rate and non-performing loans in commercial banks in Kenya