Abstract:
This study aimed at establishing the relationship between business risks and interest rate spread of commercial
banks in Kenya. It was anchored on a study "determinant of interest rate spread of commercial banks in Kenya".
Though several variables were studied, this paper specifically concentrated on the effects of business risks on
interest rate spread of commercial banks in Kenya. Correlation research approach was undertaken.
Questionnaires were used to collect data which was analyzed using SPSS Version 19. After running different tests:
reliability tests, factor analysis, descriptive tests, Pearson correlation, model of fitness and regression, the
findings revealed that business risks have an influence on the interest rate spread of commercial banks in Kenya.
The study recommended participation of all the stakeholders on review of existing policies on stability and
soundness of the banking industry. Banks should also explore internally and industry driven strategies that
mitigate against some of the bank-specific factors associated with higher spreads. Based on the research
findings, it was concluded that business risks played significant role in explaining interest rate spread. It was
therefore recommended to the government and policy makers to implement sustainable political and
macroeconomic environment to boost investors’ confidence. Commercial banks in Kenya should participate in the
interbank market or use the repurchase agreement for government securities to reduce their liquidity risk as it
was mentioned to be the greatest source of fear and hence uncertainty in setting high interest rate spread
