Interest Rates Ceiling Effect Essay

2110 WordsFeb 21, 20139 Pages
1.0 INTRODUCTION Background Information The latest published co-operative Banks financial statements show that loans and advances account from 56% of the total assets, while 64% of the total revenue stream stems from interest income. The legislation of interest rates has a significant impact on the Banks’ bottom line, as it impairs the top line, and hence a study on the effects of the legislation and possible solutions for co-operative Bank as a case study, and the industry in general is in my view necessary. 1.1 STATEMENT OF THE PROBLEM Interest rates in Kenya have been liberalized since 1991 but with the introduction of a bill which controls interest rates, the banking industry in Kenya has defiantly faced a major challenge in regard to profitability. Co-operative bank which like majority of other banks generates over 60% of its revenue from interest income has been adversely affected by the regulation. It is therefore critical to analyze this impact to co-operative bank and the industry at large. As a result, the researcher seeks to propose gateways so as to cope and evade such huge consequences. This Research aims to come up with various measures to diversify such risks Banks face with the implementation of such legislation and in turn recommend additional sources of Revenue to Banks so as to reduce risks of collapse arising from over dependency of one source of revenue as it seems to be the case here. 1.2 RESEARCH QUESTIONS a) What are the major income sources of the Bank? b) What is the proportion of the respective income sources of the bank in relation to total assets or total revenue of the bank? c) What measures does the bank deploy to survive in a competitive environment? d) What new trends in technology have been utilized in the bank for the betterment of services? 1.3 OBJECTIVES The objectives of the study are twofold: GENERAL

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