Bankers hold talks to reduce cost of credit

A bankers lobby has begun consultations with the Law Society of Kenya and the office of the Attorney-General with a view to bringing the legal component of third party costs in loan interest rates.

Kenya Bankers Association chief executive Habil Olaka said on Monday that ongoing efforts to bring down the price of loans through creating transparency would be complemented by a reduction in high third party costs which constitute a significant percentage of the total cost.

The lobby group said there was need to institute measures that would bring down say valuation fees, insurance costs and legal charges to increase access to credit.

“We are talking to the Law Society of Kenya and the Attorney General to see if the Advocate Remuneration Order Act can be amended to provide room for negotiation on legal fees,” Mr Olaka said.

He said the ongoing digitisation of files at the Ministry of Lands is also a relief to the credit sector as it will reduce turn-around time and cost of property valuation.

Mr Olaka spoke on Monday at the official release of the Annual Percentage Rate — a transparent loan pricing formula that is to be adopted by all lenders.

MAKE UP TOTAL COST

Under the mechanism, banks will have to disclose the components that make up the total cost of credit as a percentage to their borrowers.

It is made up of the interest rate component that is derived from Kenya Bankers Reference Rate (KBRR) plus individual banks’ administrative costs and fees.

It also comprises a borrower’s credit risk as well as a bank’s profit margin which lenders believe will spur competition in the sector hence benefiting those seeking loans.

“These disclosures will enable borrowers compare similar loan products on a like-for-like basis and get the best deal,” said Mr Olaka.