Kenya's CBA Bank says core flaws keep rates high

Commercial Bank of Africa (CBA) managing director, Isaac Awuondo. Photo/FILE

Kenyan banks' lending rates to customers are likely to stay high because of long transaction times and legal fees, the managing director of the country's eighth largest bank by assets said on Monday.

The Central Bank of Kenya has cut its rate four times since December last year to 7.75 per cent in the face of the global downturn and drought at home.

Officials routinely express their frustration with high bank lending rates.

"There are other structural issues which are critical to setting a price," Isaac Awuondo of Commercial Bank of Africa told Reuters, citing security for bank loans.

"It takes up to three months in this market for a security to be registered and it costs both legal fees and stamp duty."

Base lending rates for Kenyan commercial banks stand at an average of 15 per cent.

Awuondo added that the debt to equity ratio gearing for businesses was also important to the cost of credit.

"Lower lending rates depend on the structure. How much as an individual have you been able to raise? That gearing structure is very important," he said.

"If I'm going to be taking the primary risk of a shareholder, my returns should be much, much higher."

He said CBA, which focuses on corporate banking and the top end of the retail market, had increased its number of branches to 17 after expanding to the eastern Kenyan town of Meru.

The move, however, did not signify a change of strategy for the bank, he said, which has 26 shareholders including the family of Kenya's first president, Jomo Kenyatta.

"We do not intend to be a mass market bank. You are not going to see a CBA flag planted in every town in Kenya," he said, adding there were plans to expand into east Africa.

Awuondo said CBA would open branches throughout the five-nation East African Community (EAC) trade bloc to serve its Kenyan corporate customers who are also active in the region, multinationals present working there, as well as local firms.

"We expect that by 2012 we will be in all the five countries," he said. CBA already has two branches in Tanzania.

Awuondo said the bank's pretax profit for the first half of this year grew by 15 per cent, without giving figures.

"We will not do worse than last year," he said, adding that corporate customers, who account for 60 per cent of CBA's business, were drawn to it because of its experience in the segment and its global network of correspondent banks.

He sited HSBC Bank as one of their correspondent banks, adding CBA was not likely to be taken to the market soon.

"There is no advantage to CBA's listing," Awuondo said.