The Impact of Efficiency on Bank Spreads in Commercial Banks in Kenya

Abstract

This study analysed the impact of efficiency on bank spread. Secondary data was collected from the audited financial statements of thirteen commercial banks in Kenya selected through purposive sampling on the basis of data availability for all variables covering the period 2009 to 2018. The data was arranged in panel form and analysed using correlation and regression statistics with the help of SPSS and STATA softwares. Kenya’s banking sector is largely inefficient and this has the highest influence on interest rate spread. Much as policy and regulation has done so much to influence the macro-environment by way of reducing information asymmetry and introducing sufficient competition in the sector. There remain internal inefficiencies that drive costs in the banks which in turn are covered for by increasing interest rate spreads. Proper credit screening methodologies and sufficient deployment of properly skilled employees to ensure effective relationship management for loan appraisal and administration is required. Stable operating systems and timely customer issue resolution will also go a long way in curbing losses. This study has contributed to the existing academic and professional knowledge on the subject by providing empirical evidence of the nature of relationship between efficiency and bank spread in Kenya’s commercial banks.

Keywords: Efficiency, Bank spread

DOI: 10.7176/JESD/12-12-10

Publication date:June 30^th 2021