Abstract
Purpose: The purpose of this study was to establish the effect of monetary policy on the financial performance of commercial banks listed in the Nairobi securities Exchange in KenyaMethodology: The study adopted a descriptive survey of the commercial banks listed on the NSE. The total population consisted of all 11 commercial banks listed on the NSE as at 30 June 2015. Since the population of the study was small, the study used secondary data which was readily available from both the Central Bank of Kenya and the Nairobi Securities Exchange. All the listed commercial banks were included hence a census study.Results: The findings from the study confirmed that monetary policy tools such as CBR, CRR and OMO had varying degrees of relationship with the financial performance of the commercial banks listed on the NSE. The study also revealed that OMO rates positively influenced returns of the listed commercial banks at the NSE .This study also established that OMO rates were positively correlated with the financial performance of the commercial banks listed on the NSE while the Central bank rate and the CRR rate negatively influenced the financial performance of commercial banks listed on the NSE.Unique contribution to theory, practice and policy: This study therefore recommended that the Country should handle its macroeconomic policies appropriately as the changes in the macroeconomics like CBR, CRR and OMO bring about devaluation of the currency and affect the performance of the commercial banks listed in NSE.
Highlights
1.1 Background of the StudyMonetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply, availability and cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy
The findings from the study confirmed that monetary policy tools such as CBR, CRR and OMO had varying degrees of relationship with the financial performance of the commercial banks listed on the NSE
The study revealed that OMO rates positively influenced returns of the listed commercial banks at the NSE .This study established that OMO rates were positively correlated with the financial performance of the commercial banks listed on the NSE while the Central bank rate and the CRR rate negatively influenced the financial performance of commercial banks listed on the NSE
Summary
Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply, availability and cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. The primary difficulty is that few developing countries have deep markets in government debt This is further complicated by the difficulties in forecasting money demand and fiscal pressure to levy the inflation tax by expanding the monetary base rapidly. The central banks in many developing countries have poor records in managing monetary policy. This is often because the monetary authority is not independent of government. Recent attempts at liberalizing and reforming financial markets are gradually providing the latitude required to implement monetary policy frameworks by the relevant central banks Angbazo(1997).The proposed study sought to find out whether the monetary policy adopted by the central Bank of Kenya does have any effect on the financial performance of banks listed on the Nairobi Securities Exchange
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