| dc.description.abstract | Financial performance of commercial banks has not been stable as evidenced in annual supervision report of 2011 to 2020, the period within which Return on Assets (ROA) rose to 6.2% in 2012 from 3% in 2011, and to lower than 3% in the years 2016 to 2020. Literature reveals commercial banks’ lending criteria as pro-cyclical, implying being very strict during real estate boom and flexible during the bust; with likelihood of commercial Banks underestimating the default risk of the loans during periods of high demand, subsequently resulting in credit risk exposure to mortgage product. Literature provides evidence of increased mortgage lending while the performance of the Commercial Banks was declining on a fluctuating trend with non-performing Loans increasing. On the other hand interest rates demonstrate fluctuation in a less volatile order despite that studies revealing limited information on the influence of lending cost on the relationship between mortgage financing and financial performance of commercial banks. The purpose of this study was to analyse the influence of lending interest rates on the relationship between mortgage financing and financial performance of commercial banks in Kenya. Specifically, the study sought to: establish the effect of mortgage financing on financial performance of commercial banks in Kenya, to analyse the effect of lending interest rates on financial performance of commercial banks in Kenya and to evaluate the moderating effect of lending interest rates on the relationship between mortgage financing and financial performance of commercial banks in Kenya. The study was guided by Title Theory and Lien Theory of Mortgages, Loanable Funds Theory and Efficiency Theory. Banks in rerun; gain right to title, interest income and better management in respective theories. Secondary balanced panel data obtained from the audited published financial reports of 27 commercial banks offering mortgage financing in Kenya was used and found to be valid and reliable. The study covered 7-year period as from 2015 to 2021, giving 189 data points. Data was analysed using E-views 10 statistical package. The regression analysis revealed that the independent variables explained 86.69% (R2=0.8669). In the regression analysis, the coefficient of mortgage financing is 0.004434, with a p-value=0.0004 meaning that mortgage financing has a significant positive effect on financial performance of commercial banks in Kenya. The coefficient of lending interest rate was found to be -0.158824 with a p-value= 0.0020 meaning that banks’ lending interest rates have a significant negative effect on financial performance of commercial banks in Kenya. The coefficient of the product term for mortgage financing and lending interest rate was found to be -0.057650 with a p-value=0.0066. This means that lending interest rates moderates the relationship between mortgage financing and financial performance of commercial banks in Kenya. This study will be of significance to banking industry, government and academicians. The conclusions of the study are that mortgage financing has a significant positive effect on financial performance; lending interest rates have a negative and significant effect on financial performance; lending interest rates have a moderating effect on the relationship between mortgage financing and financial performance; the effect of capital adequacy on financial performance is non-monotonic. The study recommends that commercial banks in Kenya should increase the amount of mortgage offered and adjust their mortgage lending rates positively whenever they increase the amount of mortgage offered which will in turn enhance their profitability leading to an improvement in financial performance. | en_US |
