Decline in cost of lending predicted
In a Central Bank market perception survey for February, financial institutions generally expect average loan rates to fall in the remainder of the year in line with expected growth in the economy, competition and a stable macroeconomic environment. PHOTO/FILE
What you need to know:
- In a Central Bank market perception survey for February, financial institutions generally expect average loan rates to fall in the remainder of the year in line with expected growth in the economy, competition and a stable macroeconomic environment.
Commercial banks expect lending rates to decline further this year, boosting credit uptake in the market.
In a Central Bank market perception survey for February, financial institutions generally expect average loan rates to fall in the remainder of the year in line with expected growth in the economy, competition and a stable macroeconomic environment.
The trend is also to be supported by improved liquidity and declining pressure from domestic borrowing with planned issuance of a sovereign bond seeking about Sh170 billion.
“Large banks expect comparably lower average lending rates in the remainder of 2014 due to a comparatively lower cost of funds,” the survey indicated.
“But high cost of funds and expected increase in demand for loans to finance investment with pick-up in economic activity could exert some pressure on interest rates to rise,” it, however, noted.
Currently, banks are charging borrowers an average of 17.03 per cent interest on loans. This is an increase from 16.89 per cent that was levied towards the end of last year.
Last year, banks faced more risk of non-performing loans as high interest rates and cost of living took a toll on households.
Non-performing loans in the year rose by 30.9 per cent to Sh80.6 billion from Sh61.6 billion, exposing banks to high credit risk.
