Effects of Lowering Central Bank Rate on Bank’s Prime Rate: an Analysis of Kenyan Commercial Banks

Abstract

The study’s overall objective analyzed the significant causes that led to rigidity of commercial banks’ lending rates despite cost-incentives from the central bank. Towards this, the study adopted a descriptive research design for the purpose of accessing the study’s general intent. This involved a set of methods that describe the intended variables using statistical logic. Derived from the study findings, it was evident that despite concerted efforts by the CBK for the commercial banks to lower their lending rates, little gain was made since major determination was dependent on high -level non-performance loans, stiff industry competition, internal policy barriers and lending channels. The authority of the CBK to effectively regulate the channels was in opposition to majority beliefs that banks would only operate with vigor without a strong and visible hand of the regulator. Pegged on these findings the study recommended a collective approach to solving both externally and internally instigated challenges to the industry which is vital to the country’s economic growth. Moreover, there needed to be a solid monitoring and evaluation mechanism that would automatically negate non-ratified practices for the sole sake of protecting the vulnerable bank customers.