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.
