Interest Rate Capping and Performance of Nairobi Securities Exchange, Kenya
| dc.contributor.author | Musungu, Andrew Masinde | |
| dc.date.accessioned | 2025-03-10T13:29:33Z | |
| dc.date.available | 2025-03-10T13:29:33Z | |
| dc.date.issued | 2024-10 | |
| dc.description | A Thesis Submitted to the School of Business Economics and Tourism in Partial Fulfillment of the Reqiurements for the Award of Master of Science Degree (in Finance) of Kenyatta University, October, 2024 1.Julius Korir 2.Farida Abdul | |
| dc.description.abstract | This study sought to find out the effect of interest rate capping on the performance of Nairobi Securities Exchange in Kenya after the adoption of the Banking Amendment Act (2016) which introduced restrictions on lending rates and bank savings rates. Prior to capping, banks were charging high interest rates on loans but paying low interest on bank savings, thus resulting into a wide interest spread. However, after the adoption of capping of interest rates, there was a downward trend in the performance of Nairobi Securities Exchange. The effect of lending rates, treasury bills rates, savings rate as well as well as the moderating effect of the volume on the relationship between interest rate capping performance of Nairobi Securities Exchange in Kenya were the specific objectives of the study. Classical Theory of Interest Rates, Fisher’s Theory, the Arbitrage Pricing Theory and the Efficient Market Hypothesis were used in the study. All the 20 firms which yield the Nairobi Securities Exchange (NSE) 20 Share Index constituted the target population. The study used secondary data collected from the Central Bank of Kenya and Kenya National Bureau of Statistics. Diagnostic tests, including the test for autocorrelation, homoscedasticity, multicollinearity, normality, model specification and model stability tests were done. Tests for time series properties including stationarity and cointegration were performed. Model specification and model stability checks were also performed, after which data was analyzed using Autoregressive Distributed Lag Model and Autoregressive Distributed Lag Error Correction Model to establish the long run and short term relationships respectively. Ethical issues including seeking approval for data collection, confidentiality, accuracy and honesty were considered. The study concluded that interest rate capping affects performance of Nairobi Securities Exchange in Kenya. In the long run, lending rate had no relationship with the performance of Nairobi Securities Exchange but there was a negative relationship in the short run. Treasury bill rates did not have an effect on the performance of Nairobi Securities Exchange in the long run but there was a negative relationship in the short run. The study concluded that volume of credit had a negative moderating effect on the relationship between interest rate capping and the performance of Nairobi Securities Exchange in the long run, but had a positive moderating effect on the relationship between interest rate capping and the performance of Nairobi Securities Exchange in the short run. In conclusion, it’s recommended that Central Bank of Kenya should maintain low lending rates during interest rate capping since it results into an increase in prices of stocks, thus attracting investors and promoting economic growth. | |
| dc.description.sponsorship | Kenyatta University | |
| dc.identifier.uri | https://ir-library.ku.ac.ke/handle/123456789/29754 | |
| dc.language.iso | en | |
| dc.publisher | Kenyatta University | |
| dc.title | Interest Rate Capping and Performance of Nairobi Securities Exchange, Kenya | |
| dc.type | Thesis |