Monetary Policy and Performance of Commercial Banks in Kenya

Abstract

The research aimed at probing the monetary policy and performance of commercial banks in Kenya. Commercial Banks have averagely been posting continuous decline in their performance over the last decade. The exploration was carried out with the following objectives; to establish the effect of interest rate, reserve requirement, open market operation and discount window operation and the independent variables was the performance of commercial banks measured using return on asset. All the commercial banks operating before the year 2011 in Kenya constituted the population. This study utilized both primary and secondary data. Data editing and coding were done to detect anomalies and omissions. Data collected were analyzed using multiple regression model and data presentation using graphs and tables to establish the relationship between independent and dependent variables. The (SPSS) software version 16 was used to analyze data. Correlation research design was adopted to explain the existing connection of monetary policy and performance. The overall result of the study found out that monetary policy controls 72.2% of performance of banks in Kenya. If monetary policy was assumed to be constant at zero the performance of commercial banks would be 10.365, one component rise in central bank rate would led to 0.025 rise in performance of banks; one component rise in cash reserve ratio led to a 1.053 times rise in performance of banks, one component rise in open market operation led to a 0.057 times rise performance of banks and one component rise in discount window operation led to 0.61rise in the performance of commercial banks. The study concluded cash reserve ratio had the biggest effect on the performance of commercial banks succeeded by open market operation.