Moderating Role of Strategic Interaction on the Relationship Between Macroeconomic Factors and Bank Lending Behaviour: Evidence From NSE-Listed Commercial Banks in Kenya

Abstract

The study examined the moderating effect of strategic interaction on the relationship between selected macroeconomic factors and bank lending behaviour among commercial banks listed at the Nairobi Securities Exchange (NSE) in Kenya. It addresses a gap in the existing literature, which has focused mainly on the direct effects of macroeconomic factors on bank lending while paying little attention to the role of competitive strategic responses in shaping lending behaviour. A quantitative longitudinal panel design was employed for analyzing the secondary data of 11 NSE-listed commercial banks for the period of 2010–2025, resulting in 176 bank-year observations. The behaviour of bank lending was measured through credit growth and the explanatory variables were interest rate, exchange rate, inflation and GDP growth. Strategic interaction was measured by market share and interbank lending ratio. The data were analyzed using the pooled mean group autoregressive distributed lag (PMG-ARDL) estimator, and the Hausman test confirmed the PMG specification. The results indicated that strategic interaction significantly moderated all four macroeconomic relationships with bank lending behaviour in Kenya. The interaction effects were positive for GDP growth (β=0.7421, p=0.025) and the exchange rate (β=0.9533, p=0.023) but negative for interest rate (β=−0.5142, p=0.012) and inflation (β=−0.2714, p=0.014). These findings confirm that strategic interaction is relevant for the effect of macroeconomic conditions on the lending behaviour of commercial banks. Thus, monetary and macroprudential authorities should consider competitive dynamics in credit-transmission analysis. Therefore, banks should manage competitive lending with prudent risk management.

Keywords: bank lending behaviour; strategic interaction; macroeconomic factors; credit growth; PMG-ARDL

DOI: 10.7176/JESD/17-7-01

Publication date: October 30^th 2026