More banks adopt CBK loan price guide
What you need to know:
- At its meeting Wednesday, the CBK’s rate setting committee retained the indicative lending rate unchanged at 8.5 per cent despite concerns of rising inflation beyond the government’s medium term target of 7.5 per cent.
- “To tighten now would have countered the government’s stance to bring down interest rates. Loosening it would have put more pressure on inflation,” said Citibank’s head of markets, Mr Ignatius Chicha.
The new loan pricing formula released by the government is gaining traction, with 28 financial institutions adopting since its launch in July.
At least 182,731 account holders taking loans amounting to Sh43 billion benefitted, or were affected by the regime, which aims to use both the Kenya Banks Reference Rate (KBRR) and the Annual Percentage Rate (APR), to enhance transparency in pricing of loans.
AVERAGE PREMIUM
The Central Bank of Kenya (CBK), said the average premium that commercial banks charged above the KBRR on commercial mortgages was 3.05 per cent, while that on corporate loans (1–5 years) was 4.09 per cent.
“These frameworks are designed to improve transparency in credit pricing and promote full disclosure of bank charges on new loans, thereby supporting an increase in supply of affordable credit to support investment,” the CBK said. This followed a Monetary Policy Committee meeting that left the benchmark lending rate unchanged at 8.5 per cent.
At its meeting Wednesday, the CBK’s rate setting committee retained the indicative lending rate unchanged at 8.5 per cent despite concerns of rising inflation beyond the government’s medium term target of 7.5 per cent.
“The government is expecting interest rates to decline so that uptake of loans can increase to spur economic growth,” Mr Eric Munywoki, an Old Mutual analyst, said.
“To tighten now would have countered the government’s stance to bring down interest rates. Loosening it would have put more pressure on inflation,” said Citibank’s head of markets, Mr Ignatius Chicha.
SURGE IN INFLATION
The CBK said despite a surge in inflationary pressure, there were immediate concerns that inflation would continue to rise, but that the pressure would ease this month.
“There were no fundamental structural pressures on inflation, but we will pursue a tightening bias in the money market to continue to anchor inflationary expectations,” the CBK said.
Inflation rose to a 26-month high in August on the back of increases in the price of fuel and food items.
Some analysts expected a marginal increase in the benchmark rate to tame inflation, which breached the government’s upper limit of 7.5 per cent.
