CBK boss summons bank chief executives over high credit rates

When other charges are added the rates have been averaging well over 20 per cent.

Thursday January 21 2016

Central Bank of Kenya (CBK) Governor Patrick Njoroge speaks at a press conference on the Monetary Policy Committee (MPC) decisions on January 21, 2016, at CBK. Dr Njoroge said he was troubled that the bigger banks, which have more liquidity, have a more pronounced increase. PHOTO | DIANA NGILA | NATION MEDIA GROUP

Central Bank of Kenya (CBK) Governor Patrick Njoroge speaks at a press conference on the Monetary Policy Committee (MPC) decisions on January 21, 2016, at CBK. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

By OTIATO GUGUYU
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Central Bank Governor (CBK) Patrick Njoroge has summoned bank bosses to explain the increase in lending rates in recent months.

According to CBK data, on average, commercial institutions raised their borrowing rates from 15.7 per cent in August to 17.4 per cent in December, before adding their risk premium.

When other charges are added, coupled with a borrower’s risk profile, the rates have been averaging well over 20 per cent.

Dr Njoroge said he was troubled that the bigger banks, which have more liquidity, have a more pronounced increase.

“Before jumping on them, I think what I need to do is to confirm that there are no errors here. I will be meeting with all the CEOs of all commercial banks tomorrow (Friday) at a standing meeting with them,” Dr Njoroge told journalists at a press briefing Thursday.

The Daily Nation has established that banks have defied CBK’s call to cut lending rates even though the benchmarks have remained low.

A Commercial Bank of Africa (CBA) customer, who spoke in confidence, said the interest rate for his mortgage had jumped twice from 13.47 per cent in October to 18.47 per cent in November and there are fears it could move up further.

In a notice to clients, CBA claimed that the applicable interest margin “K” in early October 2015 had to be adjusted due to an elevated level of interest rates in the financial markets.

It said that the situation has meant that the overall cost on the bank’s Kenya shilling funding continues to trend higher.

“As a result, the bank has found it necessary to increase the applicable interest margin by 2 per cent per annum,” the bank said in a letter to the affected customers.

PREPARE EXPLANATIONS

This followed a 3 per cent increase the previous month. Even though the bank promised to reduce the interest rate should the conditions change, the client says he is feeling the pinch.

“I now find myself paying more than Sh100,000 above my previous monthly payment,” he said.

This fails to reflect the fact that risk-less loans (91 day T-bill) rates fell from a high of 22.5 per cent in October to a single digit of 9.2 per cent in November but has since rebalanced to 11.434 per cent last week.

Interbank rates, at which institutions lend to each other have fallen to 5.45 per cent in the week ending January 13, according to CBK statistical data.

The regulator pulled the rug under some market expectations at the monetary policy meeting on Wednesday, when it retained the benchmark for pricing loans, the Kenya Bankers Reference Rate.

“If we had used the calculations mechanically, the number would have been 10.78, but at a time of high inflation we would have had a counter effect, a policy contradiction. This would have led to instability,” said Dr Njoroge.

The governor said he would be seeking an explanation from the banks on why the rates have been adjusting upwards yet indications in the market show they should be falling.

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