EFFECT OF INTEREST RATES ON PERFORMANCE OF COMMERCIAL BANKS IN KENYA: A CASE OF SELECTED BANKS IN KISII TOWN

The success of a commercial bank depends on income and value of its assets (loans). This study focused on interest rates and their effect on performance of the commercial banks in Kenya. Descriptive research design was adopted with a target population of 153 respondents from the credit departments. Stratified random sampling was used to select a sample of 111 respondents who were administered with a structured questionnaire. The collected data was collated and coded for descriptive and inferential analyses using the Statistical Package for Social Sciences version 23. Findings revealed that Central bank (CBK) policies affect the interest rates charged (mean 4.23), interest rates charged vary depending on repayment period (mean 3.85), higher portfolio at risk (PAR) increases the number of NPLs (mean 3.77) and increased interest income promotes high performance by banks (mean 3.94).There was a statistically significant relationship between interest rates, loan provision and performance of commercial banks. The study recommended that commercial banks should effectively respond to CBK interest rate policies, minimize number of bad loans and strive to maintain low PAR.