Macroeconomic Factors and Mortgage Growth Financing by Commercial Banks in Kenya

Abstract

Various macroeconomic variables including gross domestic product (GDP), interest rate, inflation, money supply, and exchange rate, among others, have implication on financing of mortgage by financial institutions including commercial Banks in Kenya. In this paper, these variables are incorporated so as to analyze the influence of macroeconomic variables on the growth of mortgage financing and facilitate mortgage financing by commercial banks in Kenya. This study’s general objective, sought to find out the effect of macroeconomic factors on the growth of mortgage financing among commercial banks in Kenya. Specifically, the study assessed the effect of interest rate; Money supply, inflation rate, exchange rate and monetary policy have on the growth of mortgage financing within commercial banks in Kenya. The study adopted positivism paradigm and correlational research design, where the target population consisted of 43 commercial banks in Kenya. The study adopted census and collected data from the 43 commercial banks. Secondary data was used from Central bank of Kenya reports and financial statements of the commercial banks. Time series data analysis model was used using STATA software. The hypothesis was tested using the simple and multiple regression approaches. Tables and figures were used to present the findings of the study. The study found that interest rate, inflation rate and exchange rate have a significant negative effect on the growth of the mortgage financing among commercial banks in Kenya commercial banks. Economic growth and money supply have a significant positive effect on the growth of the mortgage financing among commercial banks in Kenya commercial banks. There was a significant moderating effect of monetary policy on the effect of macroeconomic factors on the growth of the mortgage financing among Kenyan commercial banks. In conclusion, findings on the effect of macroeconomic variables on the growth of mortgage financing showed that there is a statistically significant correlation between financing of mortgage products and macroeconomic variables. In addition, results showed that macroeconomic variables explain the variations of the mortgage financing. Based on the results, this paper concludes that macro-economic variables have a statistically significant influence on financing of mortgages, the five independent variables; interest rate, economic growth, money supply, inflation and exchange rate influenced the growth of mortgage financing. The government should implement policies aimed at increasing investment in infrastructure projects to stimulate economic activity, create jobs, and attract investments, ultimately leading to uptake of mortgages which will require financing from the commercial banks and thus growth in mortgage financing. The Central Bank of Kenya (CBK) should implement a transparent and predictable monetary policy framework aimed at maintaining stable interest rates and inflation within a targeted range. The CBK should use a combination of monetary policy tools, including open market operations such as buying or selling treasury bills, to manage money supply and control inflationary pressures. Collaboration with other regulatory agencies, such as the Capital Markets Authority and the Insurance Regulatory Authority, and the National Construction Authority can provide a comprehensive view of the financial system and non-financial systems which can help identify potential systemic risks that may affect mortgage financing.