Change in law raises competition as lenders compelled to reveal rates

Commercial banks will be compelled to publish their lending rates in new rules expected to raise competition for borrowers by revealing to them the cost of credit across the sector.

Amendments in the Finance Act, 2012, have authorised the regulator to publish the lending rates charged by different banks, their deposit rates and the spread (difference) between the two rates.

“The Central Bank shall publish in the Gazette, the Central Bank Web site and two daily newspapers of national circulation; the weighted average lending and deposit rates for all banks and financial institutions, the interest spread and its composition,” reads the amendment.

The change in law is among measures taken by the government to ignite competition in the industry and comes on the back of an increase in interest rates last year that caused a public outcry.

READ: Bank lending rates shoot to highest levels in eight years

“There is the issue of name and shame because no bank would want to be seen to be overcharging and that will boost competition in the industry,” said Habil Olaka, CEO of the Kenya Bankers Association (KBA).

The Act, however, does not outline how often the information is to be published.

Mr Olaka said the matter was still being discussed.

The cost and bureaucracy of transferring a loan from one lender to another could, however, make it costly to take advantage of the information provided; locking borrowers to initial lenders.

Changes being made to ease movement from one lender to another include a review in stamp duty charges, which will now be paid only once when charging a property to the bank.

Previously, stamp duty which is charged at four per cent of the property value would be charged every time a borrower changed lenders.

Other costs involved in the transfer of a loan include legal fees, the loan processing fee and the early repayment fine charged by the previous bank.

Mr Olaka said the industry was in the process of creating a common registry of all property used as security, where the first lender would be charged with taking all due diligence and the movement of the security across the industry.

The Consumer Federation of Kenya (COFEK) said the amendment was a move in the right direction, but only to the extent of information that the bankers will publish.

“It is a beginning point. At least in case of a disagreement one can get the applicable rate from the bank’s Web site unlike in the past where they could compound and you did not know,” said Stephen Mutoro CEO of COFEK.