Effect of Interest Rate Capping On Operating Performance Indicators of Commercial Banks in Kenya: A Case Study of KCB Bank (Kenya) Limited

A Research Project Report Submitted to the School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA) - FinanceThe main purpose of this study was to investigate the effects of interest rate capping on the operating performance of commercial banks in Kenya with a case study of KCB Bank Kenya Limited (KCB-K). Exploratory research was directed by three specific objectives namely: the effect of capping of interest rate on credit uptake performance of the bank, the effect of interest rate capping on bank profitability of KCB-K and the effect on performance of the portfolio of non-performing loans in KCB-K. The scope of the study was limited to a case study of KCB Bank Kenya. Literature review on the three specific objectives was identified done in detail in chapter two. Descriptive research design was applied in the study. The targeted population in the study was the employees of KCB-K at selected branches and Head Office functions. Questionnaires were used for data collection and were self-administered. One sample-statistics and MS Excel were used to establish the significance of the findings. Frequency tables were used to summarize data into percentages and frequency distributions. Pie charts were used for data presentation. SPSS (Statistical Package for the Social Sciences) and Microsoft Excel were used for data analysis. The sample size of the study was 60 employees of KCB bank branches located in Nairobi County. The main findings of the research were that interest rate capping decreased credit uptake, led to a reduction in the number of approved loan facilities, increased selection criteria for new loans and had an effect on increase in non-performing loans. Conclusions of the study were that interest rate capping lead to reduced credit uptake, reduced bank profitability and led to increase of non-performing loans due decline of new approved loans. The study recommends further studies to be done including more banks in the industry since this study focused on the KCB Bank in Kenya. Further research should be undertaken to investigate the effect that reduction in credit uptake is having on businesses, how banks are responding to the reduction in profitability and actions that result from the same such as reduction in overhead costs and job losses. Further research should be undertaken on the effect of increase in non-performing loans in the financial services industry and the economy. Finally, a research should also be undertaken to investigate the effect of interest rate capping on informal lending, financial inclusion and key macroeconomic variables of inflation and foreign exchange rate