Effect Of Macroeconomic Factors On The Profitability Of Commercial Banks Listed At The Nairobi Securities Exchange In Kenya

Abstract

Due to the vast contribution of commercial banks to the economic development in Kenya, this study examined the effect of macroeconomic variables on profitability of Commercial Banks listed in the Nairobi Securities Exchange (NSE) for years 2009 to 2016. Panel data regression analysis with fixed effects was utilized on the data to examine the effects of four macroeconomic variables which included: Gross Domestic Product (GDP), Real interest rate, Inflation rate and Exchange rate on Return on Asset (ROA) which proxies profitability. The study findings indicated that real GDP growth rate had positive significant effect on profitability of commercial banks as measured through Return on Assets (ROA). Real interest rates had a significant positive influence on profitability of listed commercial banks in Kenya. Inflation rate had a significant positive influence on profitability of listed commercial banks in Kenya. While the exchange rate had a negative significant effect on the profitability of listed commercial banks on Nairobi Securities Exchange.