Effect Of Interest Rate Components On Financial Performance Of Banks Listed At Nairobi Securities Exchange

Abstract

This paper aim was to study the effect of the components of interest rates on the performance of banks listed at the Nairobi Securities Exchange. The study determined the effects of each of the five components of interest rates; real risk-free interest rates, liquidity premium, default risk premium, maturity premium and expected inflation, through the application of time series and regression Equation. The study used multiple correlations and multiple regression analysis to determine the level and extent of effects, and to test the regression equation, as reflected by the Return on Assets (ROA) of these banks listed at the exchange. The study analyzed data of these banks from 2015 to 2017. The choice of banks was a result of the availability of information through other channels like CBK, NSE, CMA and KNBS. The researcher did not encounter any limitation throughout the research period because the data intended for use was readily available and much of it is at no cost. The research results will assist policy makers and investors alike by using the information in decision.