The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
Interest rate caps can have far-reaching consequences on the composition and maturity of commercial bank loans and deposits. This paper carefully documents these impacts on the formal financial sector in Kenya after the recent interest rate caps of...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/681501522684167817/The-impact-of-interest-rate-caps-on-the-financial-sector-evidence-from-commercial-banks-in-Kenya http://hdl.handle.net/10986/29606 |
| Summary: | Interest rate caps can have far-reaching
consequences on the composition and maturity of commercial
bank loans and deposits. This paper carefully documents
these impacts on the formal financial sector in Kenya after
the recent interest rate caps of 2016. Using bank-level
panel data from before and after the caps, the paper
identifies a significant decline in aggregate lending, an
increase in nonperforming loans, and a change in composition
of lending away from small and medium enterprises and toward
safer corporate clients. Banks also shifted away from
offering interest on current account deposits to preserve
their interest margins. These quantitative findings are
supported by qualitative evidence through detailed
interviews of commercial bank executives, and have important
implications for economic growth and financial inclusion. |
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