This study investigated the effect of interest rate deregulation on the financial performance of
Tier 1 commercial banks in Kenya, focusing on how liberalized interest rate regimes have
influenced profitability, loan accessibility, and customer satisfaction. The research is
underpinned by the financial liberalization theory, which posits that deregulation enhances
efficiency, competition, and financial deepening (McKinnon, 1973). Specifically, the study
evaluates the impact of interest rate liberalization on bank profitability, examines the influence
of deregulation-driven competition on loan accessibility and customer satisfaction, and
assesses how credit policy flexibility affects return on assets (ROA). A descriptive research
design was employed, using secondary panel data collected from audited financial reports of
nine Tier 1 commercial banks over a five-year period (2017–2021). Data analysis was
conducted using descriptive statistics, correlation, and multiple regression techniques. The
findings reveal that interest rate liberalization has a significant positive effect on profitability,
as measured by ROA. The results also suggest that increased competition resulting from
deregulation has improved customer service responsiveness and loan accessibility, although
these outcomes vary by institution. Additionally, the study finds that greater flexibility in credit
policy contributes positively to financial performance, enabling banks to tailor lending
strategies in a competitive market environment. The study concludes that interest rate
deregulation has enhanced the financial performance and operational responsiveness of Tier 1
commercial banks in Kenya. However, these benefits are contingent upon prudent credit risk
management and regulatory oversight. The research recommends continued support for
market-based interest rate systems, coupled with policies that ensure responsible lending and
improved customer experience. Further research is encouraged to explore long-term impacts
on financial inclusion, particularly within lower-tier banks and underserved populations.