EFFECT OF LENDING INTEREST RATES ON THE FINANCIAL PERFORMANCE OF KENYA TEA DEVELOPMENT AGENCY HOLDINGS LIMITED

This study examined the effect of commercial bank lending interest rates on the financial performance of KTDA Holdings Limited over 2002–2024. Guided by the Fisher Effect, the study used a positivist philosophy, a longitudinal explanatory design, and secondary annual time-series data on the commercial bank lending interest rate from the Central Bank of Kenya and Return on Assets (ROA) from KTDA audited financial statements. The study used a census of 23 annual observations. Descriptive statistics, Pearson correlation, Augmented Dickey-Fuller testing, ARDL bounds testing, and an Error Correction Model were employed. The descriptive results showed mean lending interest rate and ROA of 14.68% and 5.56%, respectively. The Pearson correlation was positive and moderate (r = 0.433). Both series were stationary at levels, I(0). The ARDL bounds test indicated a long-run equilibrium relationship (F = 5.1176, p = 0.0167). The error correction term was negative and significant (−0.9065, p = 0.0005), indicating that about 90.65% of short-run disequilibrium was corrected within one year. However, the short-run coefficient on lending interest rate was positive but statistically insignificant (0.4690, p = 0.1074), and the long-run coefficient was also positive but statistically insignificant at the 5% level (0.5174, p = 0.0727). Thus, the evidence indicates a stable long-run equilibrium relationship, but does not establish a statistically significant interest-rate effect at the 5% level. The study recommends prudent long-term financing and liquidity management and continued consideration of seasonal credit conditions and other determinants of tea-sector profitability.