Relationship between Interest Rates and Gearing Ratios of Firms Listed in the Nairobi Securities Exchange (original) (raw)
Related papers
Market Interest Rate and Profitability of Listed Commercial Banks in Kenya
International journal of multidisciplinary and current research, 2020
Banking sector remains an essential portion of any economy and it is among the main drivers. It is one of the sectors that assists to achieve Kenya`s Vision 2030. Control measures of interest rates in Kenya due to accommodative economic plan with different administration has remained the basis of concern for the banking sector for a long period. A number of research have been performed in regard to the influence of market interest rate control on the income of registered banks within Kenya. However, only few authors have supported exploration on the topic of market terms of interest rates influence viability of listed money-making banks in developing economies particularly in Kenya. It was based on this contextual that this research was carried out. The research intended to scrutinize the influence of market interest rates on viability of listed money-making banks within Kenya. The four particular objectives were; to explore influence of real level of interest on viability of registered commercial banks at NSE in Kenya; to explore the influence of nominal interest rate on profitability of listed money-making banks within Kenya; to find out the influence of interbank level of interest on viability of listed profitmaking banks within Kenya and evaluate the controlling influence of bank size on correlation amid market interest rate and viability of listed commercial banks within Kenya. Longitudinal research design was embraced in this panel data. The scholar targeted eleven listed money-making banks in Kenya. Only listed banks were chosen for this research from 2003 to 2017. Eventually, 165 bank year data was involved in the sample. Data validity and reliability was undertaken to test for accuracy and consistency of the research instruments by involving professionals in finance. Document analysis was used to collect secondary data that related to market interest rate and profitability. Autoregressive distributed lag (ARDL) models were used and outcomes were within reach as depicted on tables and diagrams. The hypotheses testing for real interest rate, nominal interest rate, interbank rate and bank size was below 5% and significant. On the findings real interest rate, interbank rate, nominal interest rate and bank size have positive relationship on viability of listed money-making banks. The researcher found out that the estimated coefficient are positive for real, interbank and size and negative for nominal. It shows that real, interbank and size possess a progressive notable influence on ROA at 10% level whereas nominal has a negative notable influence on ROA at 10% level. The research results show that concentration on market interest rates influence banks' profitability positively and the influence is relatively significant. The study recommends there is obligation of the government to continuously monitor interest rate levels because it would aid to protect borrowers from exploitation by registered money-making banks at NSE in Kenya. Therefore, listed commercial banks should adopt other avenues for income generation and increase their bank size to be more profitable.
American Journal of Finance
Purpose: The purpose of this study was to establish to establish the influence of interest rate on the financial performance of agricultural firms listed at the Nairobi Securities Exchange.Methodology: The research design adopted was descriptive and causal (explanatory). A census approach was adopted and all the seven listed agricultural companies were taken as the population. The respondents’ sample was from finance departments at all levels and 220 questionnaires were administered. Primary data was collected using questionnaires while the secondary data was collected using data collection sheets from the firms as well as from the Nairobi Securities Exchange and CMA records. The particular inferential statistic was regression and correlation analysis. Panel data methodology was employed using a multivariate regression model to test the hypotheses and link the variables.Results: The findings revealed that interest rate has a positive and significant relationship with ROA, ROE and EP...
Commercial banks be key financial service providers and based on which firm characteristics the management of each bank adopts, their financial performance has been observed to vary. The current research paper sought to interrogate the influence firm characteristics had on Nairobi Securities Exchange listed commercial banks' in Kenya financial performance. This study's main intent was to examine how firm characteristics influenced NSE listed commercial banks' financial performance. This research's specific intents was: to examine what effect the five selected firm characteristics have on Kenyan commercial banks performance, which include liquidity, leverage, solvency, asset structure, and the moderating effect of interest rate. This study was anchored on the pecking order, trade-off, and liquidity preference theories. The study adopted a causal research design that identifies the range as well as the description of the effect and cause of a correlation as well as the patterns of relationships between study variables. All the NSE-listed Kenyan commercial banks were the target populace. Statistical data of the financial statements were obtained from NSE and the CBK website. The study adopted a time scope of 7 years ranging from 2014 to 2020. Various diagnostic tests such as bivariate correlation analysis, normality test, Hausman specification test, multicollinearity test, and heteroscedasticity were carried out for the determination of the data reliability and validity. The descriptive statistical analysis acted as the tool for data analysis with the help of regression models. Results from the statistical analysis indicated a statistically significant correlation between liquidity, solvency, and asset structure, with the financial performance of Kenyan NSE listed commercial banks. Leverage on the other hand was observed to have an insignificant influence on performance. The rate of interest is also observed to have a significant influence on the correlation betwixt firm attributes and financial performance. This research suggests that central bank as a regulator of the commercial banks in Kenya to make use the results from the study to come up with regulations that are not too unfair to the banking institutions and that are based on the current business climate in the country. The Government can also use results from this study to set up stipulations that can help improve the operations of the banking sector to address the financial performance indifferences being experienced within the banking industry.
Bank Loan and Performance of Firms Listed at the Nairobi Securities Exchange
Research Journal of Finance and Accounting
This study was to establish the effect of bank loan on firm performance, the link being cost of capital and banking relationship. Firms might source valuable advice from their bankers. That advice can add value or not and is a subject of empirical investigation. This study was carried out on all the 65 listed companies at Nairobi Securities Exchange (NSE) between 2013 and 2017. There is relationship, between bank's loans to total asset ratio and firm performance, for a group, when return on assets (ROA) is employed as a measure of performance. There is no relationship when return on equity (ROE) is used as a measure of performance. It is difficult concluding that bank loan influence performance. It is possible that banks offer services to their client indiscriminately. It is not important looking at the direction of the relationship between bank loan and performance. In conclusion, firms cannot rely on bank loans and their relationship with bankers to edge out their competitors and earn superior returns.
The success of a commercial bank depends on income and value of its assets (loans). This study focused on interest rates and their effect on performance of the commercial banks in Kenya. Descriptive research design was adopted with a target population of 153 respondents from the credit departments. Stratified random sampling was used to select a sample of 111 respondents who were administered with a structured questionnaire. The collected data was collated and coded for descriptive and inferential analyses using the Statistical Package for Social Sciences version 23. Findings revealed that Central bank (CBK) policies affect the interest rates charged (mean 4.23), interest rates charged vary depending on repayment period (mean 3.85), higher portfolio at risk (PAR) increases the number of NPLs (mean 3.77) and increased interest income promotes high performance by banks (mean 3.94).There was a statistically significant relationship between interest rates, loan provision and performance of commercial banks. The study recommended that commercial banks should effectively respond to CBK interest rate policies, minimize number of bad loans and strive to maintain low PAR.
Influence of Interest Rate Regulations on Financial Performance of Commercial Banks in Kenya
2019
Despite the tight Interest rate regulations, Kenya continues to witness massive collapse of banks coupled with huge financial scandals. It’s evident that Interest rate regulations are critical issue in dealing with bank failures that has been discussed in different concepts and perspectives. Studies on interest rate regulations and financial performance have produced conflicting results hence there was need for further research with a bias in Kenyan banking sector. This study examined the influence of Interest rate regulations on financial performance of banks in Kenya. The population was 43 banks for the period 2014 to 2018. Descriptive research design was used since it’s suitable for description and measurement of phenomena with high level of accuracy. Survey methodology was applied to all 43 banks since this enhances validity of data obtained by addition of relevant information and cases to the study. Secondary data obtained from CBK annual reports and banks end year financial st...
Macro-Economic Factors Affecting Performance of Firms Listed in Nairobi Securities Exchange
Strategic Journal of Business & Change Management, 2019
The objective of this study was to examine the macro-economic factors affecting performance of firms listed in Nairobi Securities Exchange. The study targeted the firms listed in NSE. The study was anchored on flow oriented model, Mckinnon and shaw theory and Keynesian economic theory. Specifically the study looked at how money supply, inflation rate, exchange rate and interest rate affect performance of firms listed in NSE. The study adopted a descriptive survey research design. The population of this research consisted of the 20 companies listed and included in the Nairobi Securities Exchange 20 Share Index . A sample of 95 respondents was derived using formula proposed by Yamane. Data collection was done through the use of closed-ended questionnaires. The data was summarized and tabulated using descriptive measures. Data was analysed using descriptive statistics and inferential statistics where multiple regression analysis and correlation analysis was done on the data. SPSS versi...
What Are the Factors that Influence A Wide Interest Rate Band in Micro-Finance Institutions in Kenya
Interest rates play a significant role of intermediation between savers and potential borrowers. High deposit rates acts as incentives to attract savings while high lending rates discourage credit demand from potential borrowers. The margin between deposit rate and lending rate at a given time period forms an interest rate band which has implications on borrowing and deposit mobilization in the economy. In Kenya, the interest rate band has persistently remained wide despite the efforts to narrow it down. Several factors have been established that influence this wide interest rate band. However, this was before the financial reform period when commercial banks dominated the financial sector. This study was designed to evaluate the factors that influence a wide interest rate band in Micro Finance Institutions (MFIs) is new developments in the financial sector due to financial reforms in the year 2004. MFI sub sector has contributed to the competitive environment in the credit market. Factors that influence interest rate bands for these Institutions have not been documented. Purposive sampling was used to select a sample of 27 MFIs that are registered members of Association of Micro Finance Institutions (AMFI) Kenya and carry out retail Micro Finance activities. A cause effect research design was applied. Secondary data was extracted from financial statements using a data collection sheet and a questionnaire used to collect primary data. Data was collected for a four year period (2005-2008) and was analyzed using descriptive statistics. A censored linear tobit model (Tobit) was used to test the hypothesis. The results indicated significant differentials between deposit rates and lending rates. From the findings, four factors; Growth, Financial costs, Profitability and Operating/Administrative costs significantly influenced a wide interest rate band depending on the time period. Findings from this study are expected to provide information to policy makers for decision making and policy formulation. The findings are also expected to be beneficial to the Donor community and support groups in their endeavor to promote Micro — Finance activities in Kenya Keywords: interest rate band, Micro Finance Institution, and Interest rates 1.0 INTRODUCTION Interest rate is a percentage charged for use of borrowed money. It is an amount received in relation to an amount loaned expressed as a ratio. Lending institutions give out money in terms of loans on which they charge a percentage rate as interest payment. On the other hand savers lend to the institutions in terms of deposits from which they expect to receive a percentage payment as interest. Therefore, Interest rates include the rates paid for deposits (deposit rate) and the rates charged on loans (lending rate) for a given time period. Deposit rates include savings, call and time deposit rates while lending rates include rates charged on overdrafts and term loans (Ngugi & Wambua, 2004). Interest rates play a significant role in the financial system through the allocation of resources in the economy. The rates have the ability to intermediate between potential savers and borrowers (Kinyua, 1997). For savers, a high interest rate on deposits acts as an incentive to deposit their money in depository institutions instead of putting the money in other alternative forms of investments. For borrowers, a high interest rate on lending translates to high costs of borrowing which discourages potential borrowers since this leads to high production costs which have a negative effect on returns (Kinyua, 1997). This means, a balance has to be maintained for purposes of economic development in terms of investment. The deposit rate has to be high to attract deposits which form part of the resources for lending while the lending rate has to be favorably low to attract borrowing for investment (Kinyua, 1997). The differential or margin between the average maximum lending rate and the average minimum deposit rate in a given period is referred to as the interest rate band or spread which signifies the gap between the two rates. A high margin creates a wider interest rate band while a lower margin creates a narrow interest band. High margins are experienced when the lending rates are high and deposit rates low in any given period while narrow margins experienced when lending rates are low and deposit rates high in any given period. The size of the interest rate band influences expansion and development of financial intermediation in the economy. Wide bands constrain expansion and development of financial intermediation (Njuguna & Ngugi, 2000). Financial intermediation involves mobilizing deposits and disbursing them as loans to clients. In any financially
2014
This study investigated the determinants of commercial banks" lending behavior in the Ethiopian context. The study aimed to test and confirm the effectiveness of the common determinants of commercial banks lending behavior and how it affects the lending behavior of commercial banks in Ethiopia. Balanced fixed effect panel regression was used for the data of eight commercial banks in the sample covered the period from 2001 to 2013. Seven factors affecting banks loan and advance were selected and analyzed. The results of panel data regression analysis showed that volume of deposit and bank size had positive and significant impact on loan and advance. Liquidity ratio and interest rate had negative and significant impact on loan and advance. Cash reserve requirement, and inflation rate had positive and significant impact on loan and advance but the coefficient sign was not as expected. Real GDP growth rate had statistically insignificant impact on bank"s loan and advance. The ...