INFLUENCE OF TRANSFORMATIONAL LEADERSHIP ON RISK-BASED PRICING MODEL: A CASE OF KENYA COMMERCIAL BANKS WITHIN NAIROBI COUNTY

Abstract

For a long time, the Kenyan government has been persuading commercial banks to apply a loan pricing model known as "risk-based pricing" through the Central Bank of Kenya, the banks' regulator. This study aimed at investigating the impact of transformational leadership on risk-based pricing model by commercial banks within Nairobi County. Specifically, it sought to: determine whether idealized influence affects risk-based pricing model, investigate the relationship between intellectual stimulation and risk-based pricing model, establish the influence of individualized consideration on risk-based pricing model, and investigate the extent to which inspirational motivation influences risk-based pricing model by commercial banks within Nairobi County. The research was grounded on transformational leadership and arbitrage pricing theories. The study utilized a cross-sectional descriptive research design and employed a stratified sampling technique to select 234 bank managers from Tier 1, Tier 2, and Tier 3 commercial bank branches within Nairobi County. Quantitative data was collected through administration of open and closed-ended questionnaires. The analysis of the data comprised of both descriptive and inferential statistics. Descriptive statistics were used to summarize and describe the key features and characteristics of the data while inferential statistics were employed to draw conclusions and make inferences about the population based on the sample data. The findings revealed that idealized influence, inspirational motivation, intellectual stimulation, and individualized consideration all significantly and positively influenced risk-based pricing model (p-values< 0.05). These results indicated that employing transformational leadership strategies can foster a culture of risk-taking and encourage risk-based pricing in commercial banks, thereby enhancing their financial performance. The study provides valuable insights for commercial banks in Kenya, demonstrating the potential of transformational leadership in promoting acceptance of risk-based pricing strategies. It also holds theoretical implications for leadership studies and policy implications for Kenya's regulatory environment.