Kenya: Bank Loans Still Expensive Despite Drop in CBK Rates

BY PETER KIRAGU, 29 MARCH
Most commercial banks have ignored Central Bank's push for lower lending rates through the reduction of its lending rate to spur growth.

Inquiries by the Star revealed that commercial banks are charging interest rates of up to 28 per cent on personal loans despite the fact the CBK has drastically reduced its key indicative rate that it charges on loans to commercial banks.

Treasury Bill rates that are also used by banks to price loans have also been on a downward trend for months now. Deposit rates are also falling meaning banks are accessing their funds for on-lending at much lower rates.

Measures such as integration with mobile phone financial platforms and adoption of the agency banking network have lowered transaction costs for banks. Credit Reference Bureaus have also reduced the costs of information search and risk.

"The high interest rate spreads indicate that the various initiatives formulated by the CBK and Kenya Bankers Association to reduce the cost of doing business in banks are yet to be fully transferred to bank customers," according to the latest Monetary Policy Committe report.

From a high of 18 per cent last year, the CBR is now at 9.5 per cent while the 91-day Trasury Bill rate has fallen from a high of 20.6 per cent in January last year to 10.3 per cent this week.

The country's five major banks are charging between 19 and 25 per cent on unsecured personal loans. Equity Bank with more than 50 per cent of the country's bank accounts charges between 19 and 23 per cent depending on the amount borrowed and the repayment period.

The bank's chief executive James Mwangi told its shareholders on Wednesday that the bank is considering lowering its interest rates to match the prevailing conditions. The bank is still cautious though. "We are managing the interest rate risk which is very high in this country," Mwangi said.

Kenya Commercial Bank is charging between 19 and 22 per cent for walk-in customers seeking unsecured loan. The rate is reduced if the borrower works for a company that has a loan agreement with the bank.

Barclays charges a high of 24.9 per cent on its unsecured personal loan while Standard Chartered charges 19.9 per cent to 22.5 per cent depending on if one has a payroll account with the bank or not.

Co-op Bank is charging 24.9 per cent while CfC Stanbic has recently slashed its lending rate from 27 per cent to 24 per cent. National Bank charges 23 per cent for a 36-month loan and 24 per cent on a loan above that maturity period.

Retail-focussed bank Family is perhaps the cheapest for walk-in customers at the moment charging an average of 18 per cent. The bank's chief executive said interest rates are likely to drop further in the next six months.