Banks interest rates in Kenya hit new low

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Lending charges in Kenya have dropped to a new low as commercial banks bring them down, albeit slowly, following the implementation of a loan-pricing formula by the regulator over a year ago.

banks hall
banks hall

The rates have declined to an average of 15.5 percent, a low of about four years, according to new economic data from Kenya National Bureau of Statistics (KNBS) received Wednesday.
East African nation citizens last borrowed cash at less than 16 percent charge in October 2011, when the rates stood at 15.2 percent. The borrowing rates have been rising since then as inflation bites and the government borrows more money from the domestic market to finance its activities.
They peaked at 20.3 percent in June 2012 as inflationary pressure stood at 18 percent. In 2013, the charges averaged 18 percent while last year saw the rates stand at 16.5 percent.
Things are warming up for Kenya’s borrowers since January as the rates fell to below 16 percent and are continuing to come down.
Analysts, however, noted the rates should be lower than the current ones if banks adhered to the new-loan pricing formula, or Kenya Banks Reference Rate (KBRR) introduced by the Central Bank of Kenya (CBK) over a year ago.
KBBR is based on averages of the CBK’s indicative rate (now at 8.5 percent) and the 91-day Treasury bill yield over six months (8. 5 percent).
The regulator devised the tool to protect consumers by standardising the lending rates, which varied geatly from one bank to another.
CBK set the KBBR at 8.5 percent two months ago, down from 9.13 percent. Banks should thus be charging Kenyans an interest rate of about 12 percent.
However, according to the Kenya Bankers Association, Kenyans should not expect loan rates to come down as the aim of KBRR was to enhance transparency by helping customers compare loans to pick the best lenders.
“One of the things that have kept the interest rates higher than what Kenyans may want is increased borrowing from the domestic market by the government,” said economic lecturer Henry Wandera.
Kenya’s domestic debt, according to the Treasury, stands at 15 billion U.S. dollars following increased sale of government securities to fund projects in energy and transport sectors.
“Banks are the biggest lenders to the government, which offers guaranteed returns. Loaning to the government is also less risky. It is thus the preferred borrower for commercial banks pushing up cost of lending to other sectors,” said Wandera. Enditem

Source: Xinhua

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