CBK report fingers big banks for charging high credit rates

Tuesday February 16 2016

The Central Bank of Kenya (CBK). The banking industry is now in a position to reward good borrowers who are typically customers with a good credit track record, but borrowers will have to wait much longer to feel the full impact of comprehensive information sharing by banks. PHOTO | FILE

Choice Microfinance Bank Chief Executive Lydia Maina and chairman Ben Kamiri at a press briefing in Ongata Rongai, Kajiado County. PHOTO | COURTESY NATION MEDIA GROUP

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The six largest commercial banks in the country charged Kenyans higher than industry average lending rates for personal and business loans between June and December, data from the Central Bank of Kenya, (CBK) shows.

According to information published by the regulator last week showing the overall average weighted lending rate for each commercial bank before adding their risk premium, KCB priced its loans at 17.3 per cent, Cooperative Bank of Kenya at 17.5 per cent, while Barclays Bank of Kenya priced its loans at 18.5 per cent as at December 15.

At the same time, Standard Chartered Bank of Kenya had its rate at 18.5 per cent, Equity Bank at 19 per cent, while Commercial Bank of Africa was at 19.6 per cent.

These rates represent the weighted average rate across all loan categories (corporate, business and personal) and maturities (overdraft, 1-5 years and over 5 years) in the specific banks.
Over and above the rates, CBK says these lenders may have levied other fees and charges, including administration fees, processing fees, valuation fees, legal fees and commitment fees, among others.


This means, therefore, that the effective rates charged by individual banks over the period may have been higher than these depending on the other fees and charges levied on loan products by the specific bank.

“The actual rates are based on negotiations between the bank and the borrowing customers. It should be noted that the published interest rates only constitute banks’ lending rates,” CBK said.

Average lending rates in the market stood at 17.4 per cent in December from 17.2 per cent in November and 15.7 per cent in August last year.

Highly priced credit has been a drag on the economy, with CBK Governor Patrick Njoroge accusing the large lenders of “taking advantage of their dominance” to arbitrarily increase costs on the back of their large network of branches and services, and deposit base.

Yesterday, experts told the Nation that competitive pressure arising from the “name and shame” transparency push adopted by the regulator may force banks to examine, and possibly reduce, their rates in future, triggering a market realignment.

“By shining a torch on lending rates, I expect consumers to be better informed and, therefore, over time, I expect more portability. This will force banks to be more competitive,” said investment analyst Aly Khan Satchu.

Economist and University of Nairobi lecturer Michael Chege warned that Kenyans with existing loans could face hurdles in choosing cheaper lenders.