Assessment Of Effects Of Monetary Policies On Lending Behaviour Of Commercial Banks In Kenya

ABSTRACT

The purpose of this paper was to investigate the effect of monetary policies on the lending behaviour of commercial banks in Kenya. Previously the government did not develop monetary policies but instead gained their legitimacy by acting as lenders of last resort (through the CBK) in the midst of financial crises. Today there is considerable debate surrounding the effects of monetary policies with the emergence of active foreign trading and the need to formulate policies which will stimulate economic growth and maintain a low inflation. Commercial banks are in the business of mobilizing and lending financial resources to borrower‘s .The bank lending channel suggests that banks play a special role in the transmission of monetary policies. Commercial banks are profit motivated institutions and their response to monetary policies largely influence their profit margins. The study analysed the response of commercial banks to monetary policies in context of interest rates (cost of lending) and reserves available for lending. The study employed a descriptive research design. The study target population was drawn from the five most profitable commercial banks in Kenya. Purposive sampling was used to select respondents from credit department - lending department of each commercial bank. This study collected both primary and secondary data. Before processing the responses, the completed questionnaires were edited for completeness and consistency. A content analysis and descriptive analysis was employed. The content analysis was used to analyse the respondents‘ views about to establish effects of central banks‘ monetary policies on the lending behaviour of commercial banks in Kenya. The data was coded to enable the responses to be grouped into various categories. Descriptive statistics such as means, median mode and standard deviation were used to help in data analysis. Tables and other graphical presentations as appropriate were used to present the data collected for ease of understanding and analysis. Further, correlation and regression analysis was conducted to to study the relationship between monetary policies and the lending behaviors of commercial banks. The study established that CBR, cash reserve ratio, open market operation and uncertainty caused by possible outcomes caused by monetary policy changes influences lending behaviour by commercial banks in Kenya.