A key indicator of financial performance and efficiency is the spread between the lending
and deposit rate. If this spread is large, it works as an impediment to the expansion and
development of financial intermediation. This is because it discourages potential savers
due to low returns on deposits and thus limits fmancing for potential borrowers. This has
the economy wide effect of reducing feasible investment opportunities and thus limiting
future growth potential. It has been observed that large spreads occur in taxation or
repression, lack of competitive financial banking sector and macroeconomic instability.
That is risks in the financial sector are high. Financial reforms and liberalization should
improve efficiency in the intermediation process. This implies that the spread will decline
over time as liberalization is accomplished and financial sector develops. But in Kenya
financial liberalization seems to have led to a widening interest rate spread. The main
factors that propel this are distortions in the loans market, institutional and policy factors
impact on transaction costs compound the effects of risks and uncertainty in the market
thus worsening the spread. To narrow the interest spread it is important to maintain a
stable macroeconomic environment and thus reduce credit risks. There is also a need to
minimize implicit taxes like reserve requirement and cash ratios accompanied by fiscal
discipline to reduce the demand for financing budget deficit with low cost funds. Banks
should perform more screening functions than simply investing in treasury bills to
enhance economic growth and invest in information capital to reduce the moral hazard
and adverse selection problems. By enhancing competitiveness in the Treasury bill market and promoting diversification of financial assets for investors banks will have to compete for public funds. The result of this will be to squeeze the spread from increasing deposit rate. Above all strengthening the institutional base is important in enhancing enforceability of contract
PAULINE, A (2021). The Effect Of Interest Rates Spread On Lending Capacity Of Bank A Case Study Of Barcla Ys Bank Of Kenya. Afribary. Retrieved from https://afribary.com/works/the-effect-of-interest-rates-spread-on-lending-capacity-of-bank-a-case-study-of-barcla-ys-bank-of-kenya
PAULINE, AKA "The Effect Of Interest Rates Spread On Lending Capacity Of Bank A Case Study Of Barcla Ys Bank Of Kenya" Afribary. Afribary, 10 Jun. 2021, https://afribary.com/works/the-effect-of-interest-rates-spread-on-lending-capacity-of-bank-a-case-study-of-barcla-ys-bank-of-kenya. Accessed 24 Jul. 2021.
PAULINE, AKA . "The Effect Of Interest Rates Spread On Lending Capacity Of Bank A Case Study Of Barcla Ys Bank Of Kenya". Afribary, Afribary, 10 Jun. 2021. Web. 24 Jul. 2021. < https://afribary.com/works/the-effect-of-interest-rates-spread-on-lending-capacity-of-bank-a-case-study-of-barcla-ys-bank-of-kenya >.
PAULINE, AKA . "The Effect Of Interest Rates Spread On Lending Capacity Of Bank A Case Study Of Barcla Ys Bank Of Kenya" Afribary (2021). Accessed July 24, 2021. https://afribary.com/works/the-effect-of-interest-rates-spread-on-lending-capacity-of-bank-a-case-study-of-barcla-ys-bank-of-kenya