EFFECTS OF OPERATIONAL COSTS ON LENDING INTEREST RATES OF COMMERCIAL BANKS

Abstract

The high interest rates charged by many commercial banks have attracted the attention of policy makers throughout the world.  The commercial banks lending interest rates is a key indicator of the marginal cost of short-term and long-term external funding in an economy and provides useful information about developments in the average cost of borrowing. Various theories have been put across to address this issue. This paper examines the relationship between operational cost and lending interest rates of commercial banks (CBs) in Kenya.  The study employed a descriptive research design. A study on a sample size of 34 commercial banks was undertaken. Secondary data was collected for the year 2013 from financial statements of the commercial banks and the NSE handbook. Primary data was collected by use of semi-structured questionnaires. The findings of the study indicated that the operational costs had a significant positive influence on the lending interest rates of CBs in Kenya.

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