MACRO-ECONOMIC VARIABLE FLUCTUATIONS AND STOCK MARKET PERFORMANCE OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE
Abstract
Problem: The financial performance of commercial banks listed at the Nairobi Securities Exchange (NSE) is influenced by fluctuations in macroeconomic variables, yet the extent to which factors such as inflation, interest rates, exchange rates, and economic growth affect bank performance in Kenya remains unclear.
Purpose of the Study: The purpose of this study was to examine the effect of macroeconomic variables on the financial performance of commercial banks listed at the NSE in Kenya.
Methodology: The study was anchored on Keynesian Economic Theory, Arbitrage Pricing Theory, and the Market Power Theory. A descriptive research design was adopted. The target population consisted of the nine commercial banks enumerated on the NSE. Secondary data on inflation, interest rates, exchange rates, and GDP was obtained from the Kenya National Bureau of Statistics, while share price data was obtained from the NSE. The study used quarterly data for the period 2015–2024, resulting in 40 observations. Time series analysis using multiple linear regression was conducted after diagnostic tests for linearity, homoscedasticity, autocorrelation, multicollinearity, and stationarity. Hypotheses were tested at a 95% confidence level using the t-statistic.
Findings: The results indicate that Consumer Price Index (CPI) volatility, Central Bank Rate (CBR) volatility, and exchange rate volatility negatively and significantly influence the financial performance of commercial banks listed at the NSE. Conversely, GDP growth has a positive and significant effect on bank performance, indicating that strong economic growth enhances the financial performance of commercial banks.
Recommendations: The study recommends strengthening fiscal and monetary policy coordination to stabilize inflation and ensure predictable price movements. It also recommends maintaining a consistent and transparent Central Bank Rate policy and strengthening exchange rate risk management mechanisms among banks and regulators.
Keywords: Macro-Economic Variable, Fluctuations, Stock Market Performance, Commercial Banks Listed, Nairobi Securities Exchange
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