Co-op bank directs units to cap loan prices at 14.5pc

Co-operative Bank has capped pricing of all new loans at 14.5 per cent, becoming the first bank to indicate it is complying with the new law on interest rates even as banks continue to argue that they are unsure of the base rate to use for loans.

In a break with the position of the Kenya Bankers Association (KBA) that lenders would wait for guidelines before effecting any changes to their lending structure, Cooperative Bank cited the section of the Act that bars any new loan contract exceeding the prescribed rate as the reason for its move.

“In the foregoing and for business continuity, we advise that pending receipt of full guidelines from our regulator the Central Bank of Kenya particularly on the applicable base rate, all new credit facilities shall be at a rate not exceeding 14.5 per cent per annum (being current Central bank Rate of 10.5 per cent plus four per cent),” said Cooperative bank chief executive officer Gideon Muriuki in a memo to all branch managers and lending units.

The lender, Kenya’s second largest by market share, was however silent on whether it will immediately implement the minimum rate set by the law for interest earning deposit accounts, which has been pegged at 70 per cent of CBR.