The Effects of Income Diversification and Non –Performing Assets on Interest Spread among the Kenyan Commercial Banks

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dc.contributor.authorMaigua, Peter Mwangi
dc.contributor.authorMugendi, Charles Ndegwa
dc.contributor.authorNjuru, Stephen Gitahi
dc.date.accessioned2022-05-30T08:53:00Z
dc.date.available2022-05-30T08:53:00Z
dc.date.issued2018
dc.descriptionA Research Article in the Journal of Economics and Sustainable Developmenten_US
dc.description.abstractBanking institutions plays a major role in a country’s and global economy. An efficient financial intermediation has a direct impact on effectiveness of investable resource mobilization, and thus, economic development. A major indicator of efficiency in banking sector is the interest rate spread which indicates the level of financial sector’s development. Therefore, a major goal in financial sector deepening and financial liberalization is the narrowing down of interest spread. In Kenya various structural changes intended to lower interest rate spread were initiated by the Central Bank of Kenya (CBK) since interest rate liberalization in early 1990s, but as documented in various Monetary Policy Statement issues and acknowledged by the Industry players and policy makers, interest rate spread remained high. But commercial banks have undergone a lot of changes characterized by new business models anchored on enhanced technologies and innovativeness; income diversification and others, in order to help them in reducing interest rate spread. Therefore this study sought to establish the effect of income diversification and non-performing assets on interest rate spread among Kenyan commercial banks. While few studies had been conducted in this subject, none had captured the post economic crisis period in a broad way. Further, income diversifications, a product of commercial bank evolution in the period under study, received little attention. The study used quarterly bank-specific, industry specific and macroeconomic data between 2004 and 2014. Random effect regression analysis was used to meet the objective. Regression results indicated a 0.11 percent fall in spread following a 1 percent increase in the proportion of non-interest income to total income. No significant relationship was observed between spread and non-performing assets. But market concentration and operation cost had significant positive relationship. On the other hand, increased illiquidity in commercial banks reduced spread. The study recommends focus on operational efficiency, income diversification, market competition, reduced return’s appetite and scaled credit information sharing.en_US
dc.identifier.citationMaigua, P. M., & Njuru, C. N. M. S. G. The Effects of Income Diversification and Non–Performing Assets on Interest Spread among the Kenyan Commercial Banks.en_US
dc.identifier.issn2222-1700
dc.identifier.issn2222-2855
dc.identifier.urihttp://ir-library.ku.ac.ke/handle/123456789/23783
dc.language.isoenen_US
dc.publisherIISTEen_US
dc.subjectIncome Diversificationen_US
dc.subjectNonperforming Assetsen_US
dc.subjectInterest rate spreaden_US
dc.subjectBanking Institution.en_US
dc.titleThe Effects of Income Diversification and Non –Performing Assets on Interest Spread among the Kenyan Commercial Banksen_US
dc.typeArticleen_US
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