📄 Abstract
Commercial banks play a critical role in promoting economic growth through financial intermediation, credit creation, and efficient allocation of financial resources. However, fluctuations in interest rates continue to pose significant challenges to bank profitability and financial sustainability. Interest rate risk affects the value of bank assets and liabilities, influences net interest income, and may ultimately impact overall financial performance. This study examined the nexus between interest rate risk and the financial performance of commercial banks in Kenya. The study was anchored on the Interest Rate Expectations Theory, which posits that current interest rates reflect market expectations of future rates and consequently influence financial decisions and performance outcomes. A longitudinal research design was adopted, targeting all 38 commercial banks licensed by the Central Bank of Kenya. Secondary data were collected from audited annual reports and financial statements for the period 2020–2024. Descriptive statistics were used to summarize the characteristics of the study variables, while panel multiple regression analysis was employed to establish the relationship between interest rate risk and financial performance. The findings revealed that interest rate risk exhibited moderate variability across commercial banks during the study period. Regression results indicated that interest rate risk had a positive but statistically insignificant effect on financial performance (β = 0.0147, p > 0.05), suggesting that fluctuations in interest rates did not significantly influence the profitability of Kenyan commercial banks. The study concludes that effective interest rate risk management practices may have moderated the potential adverse effects of interest rate movements on bank performance. The study recommends strengthening asset-liability management frameworks, enhancing interest rate forecasting capabilities, and adopting advanced risk management technologies to improve financial performance and resilience within the banking sector.
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📚 How to Cite:
Wilson Ronoh, Dr. Raymond Kemboi, Prof. Williter Rop , NEXUS BETWEEN INTEREST RATE RISK AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA , Volume 13 , Issue 6, June 2026, EPRA International Journal of Economics, Business and Management Studies (EBMS) , Pages: 58 - 64 , DOI: https://doi.org/10.36713/epra30306