CBK to issue new system for pricing loans next week

Loan borrowers will have to wait till next week for a new pricing system that many hope will make credit more affordable.

The Treasury had directed that flexible loans issued from Tuesday be priced using the proposed Kenya Bank Reference Rate (KBRR) framework.

Central Bank, which is mandated with calculating the rate that will serve as a standard for all banks is , however, yet to prescribe the new rate.

“It is an implementation challenge rather than an issue of policy. We do not have a KBRR rate yet and we will need to have it,” said Habil Olaka, the chief executive of the Kenya Bankers Association.

Central Bank is expected to issue the first KBRR on Tuesday next week after a meeting of its monetary policy committee. The rate would apply for six months.

It was not clear how loans issued between today and the date the rate becomes effective will be priced. KBRR is an average of the central bank rate, currently 8.5 per cent and the average 91-day Treasury Bill rate for the previous six months.

The rate will be the floor on which each lender loads its premium, enabling borrowers to consider the most affordable lender.

READ: Banks start open loan-pricing July

Mr Olaka, however, said bankers were ready to start disclosing the annual percentage rate (APR) from Tuesday. The APR is the indicative price of a loan, including non-interest charges.

The APR will capture the one-off processing fee, insurance cost, security charging expenses and the actual interest charged on the loan.

Previously banks have been blamed for levying hidden charges on loans, making it difficult for borrowers to track what has been paid for especially in times of distress.