Interest Rates Risk and Financial Performance of Commercial Banks in Kenya

Financial performance is critical for banks because it determines their ability to generate profits, manage risks, and retain the trust and confidence of their customers, shareholders, and regulators. Strong financial performance improves a bank's reputation and increases stakeholder trust and confidence. The financial performance of commercial banks has been volatile over time, as evidenced by return on assets. The study sought to establish the relationship between interest rate risk and the financial performance of Kenyan commercial banks. The study specifically sought to determine the impact of interest rate risk on the financial performance of commercial banks in Kenya. The study was based on Liquidity Preference Theory. The study followed a descriptive research design. The study's target population was Kenya's 39 commercial banks regulated by the CBK as of December 31, 2022. Prior to data collection, an introduction letter was obtained from Jomo Kenyatta University of Agriculture and Technology. The study used a census sampling technique, which included all of the accessible population from all 39 commercial banks. Data were collected from secondary sources using a secondary data collection sheet. The data was gathered from financial and statistical reports issued by the respective banks, the CBK and KNBS. Data was analyzed using both descriptive and inferential statistics. The descriptive statistical tools used were minimum, maximum, mean, standard deviation, skewness, and kurtosis. Pearson Correlation Analysis and panel regression analysis were among the inferential statistic tools used. The findings revealed that interest rate risk has a significant effect on the financial performance of commercial banks in Kenya, with a P-value of 0.000. The study concluded that interest rate risk affects the financial performance of Kenyan commercial banks. The study recommended that Kenyan commercial banks monitor interest rate trends on a continuous basis and adjust their lending and investment strategies to maintain profitability in the face of changing markets. Keywords:   Interest Rates, Risk, Financial Performance, Commercial Banks, Kenya