The Impact of Macroeconomic Determinants of Bank Credit in Kenya

Vundi, Z.N. & Olweny, T.

College of Human Resource and Development, Jomo Kenyatta University of Agriculture and
Technology, P.O. Box
62000, 00200 Nairobi Kenya. E-mail:
nickysaha@yahoo.com

ABSTRACT

The study investigates the impact of macroeconomic variables on banking credit in Kenya using
Auto Regressive Distributed Lag (ARDL) approach and quarterly time series data over the period
between 2010 and 2014. The 6 macroeconomic variables (real GDP, money supply (MS2), interest
rates, inflation rate, exchange rate and bank deposit liabilities) are used as independent variables
whilst private credit is used as dependent variable. From the estimated results, broad evidence
shows that there exist a positive relationship between real GDP, money supply (M2), interest rates,
bank deposit liabilities and private credit, whilst a negative relationship between inflation rate,
exchange rate and private credit. Therefore, the study recommends a broad monetary policy
implementation and initiation of key reforms (both financial and economic reforms) for a stable,
efficient and sustainable financial sector (or system). In addition, appropriate macroeconomic
management and government support for theories of growth for a well-developed and functioning
financial market are greatly essential in promoting and accelerating economic development for a
stable and developed banking sector.

Keywords: Banks credit, Macroeconomic determinants, ARDL approach, Kenya