The relationship between lending rate and non performing loans in commercial banks in Kenya

Kenya has experienced high lending rate regime over the past years by commercial. The \ncraving for higher profits by commercial has lead to this unending debate about lending \nrates charged on loans and advances. Those taking new facilities together with those \nalready having a facility have had to content with additional funds demanded by banks \ninform of increased monthly repayment. The public outcry has been loud, resulting \nserious legal battles between borrowers and commercial banks. The central bank has been \nurged to intervene in many instances as the public feels that banks are overcharging \nlending rates on borrowed funds and thus forcing them to be unable to repay their loans \non time. The above problem has lead to the rise of none performing loans in commercial \nbanks making banks to declare huge losses. \nThe aim of this research therefore was to determine if there exists a relationship between \ninterest rate and the level of non-performing loans as reflected in the books of the various \ncommercial banks in Kenya. The researcher wanted to find out how the Borrower has \nbeen affected by the increased installments arising from the lending rate change. The \nstudy involved collecting financial statements for the various banks and analyzing them \nto determine if there is any relationship between interest rates and non-performing loans. \nAs a consequent, data for the past five years (2009-2013) was analyzed with the help of \nSPSS statistical software and the results presented in form of correlations, regression and \ncoefficients. Test of significance were further carried out. The results showed that there \nwas no significant relationship between lending rate and non-performing loans in \ncommercial banks in Kenya