Relationship between interest rates spread and financial performance of commercial banks in Bomet county, Kenya

Abstract

The financial services sector plays a critical role in the economy of a nation. The Commercial banks have established themselves so as to serve their customers and get some income to sustain them. The banks mainly make business by giving loans and charging interest for it. Prior regulation, interest charged was fairly high in some banks even to a tune of say 30%, while interest earned by savers remained low. This provoked members of parliament to control the spread to ensure that banks were not ultimately the sole beneficiary. Their argument was that banks were exploiting its customers. It is not clear whether this argument has a scientific basis given the limited studies investigating this phenomenon, specifically in the study area. Thus, a need to inquire into the relationship between interest rates regulation spread and financial performance of Commercial Banks in Bomet County. A survey research design was used in this study where the target population was 158 Credit officers working in Commercial Banks in Bomet County. Census sampling method was used where a total of 158 questionnaires were administered and only 142 questionnaires were properly filled and returned indicating a response rate of 89.9% which was very good. Reliability of data was actualized by doing a pilot study in Commercial Banks in Kericho County where Cronbach Alpha of above 0.75 was actualized in every research variable. Research instrument was validated by experts who gave their views which were incorporated into the research instrument. Data was collected using self administered structured questionnaire whose response was processed and analysed using SPSS version 24. The results of this study may be beneficial to commercial banks who will use the information to review their performance so as to review their lending amount and reduce on their lending risk for them to remain competitive.