Equity the first bank to make fresh loan interest rate reduction
An Equity Bank branch in Kisumu. PHOTO/FILE
Equity Bank has become the first lender to announce a 50 basis point reduction on loan rates in line with last week central bank’s decision to slash Central Bank Rate (CBR) to 10 per cent from 10.5 per cent.
The Monetary Policy Committee (MPC) cut amplified the pain lenders might undergo as they benchmark rates on the industry regulator’s policy benchmark every time it is adjusted.
A new round of rate adjustments is now compulsory, hot on the heels of the September 14 interest capping as ordered by Central Bank of Kenya (CBK).
“Equity Bank Kenya Ltd wishes to inform our customers that in line with the new CBR effective September 21, interest chargeable on local currency credit facilities have been reduced to 14 per cent while interest payable on local currency deposits held in interest earning accounts will earn a minimum interest of seven per cent,” the notice read.
This comes just under two weeks after Equity reduced applicable lending rates to 14 .5 per cent.
CBR is reviewed every two months and analysts warn that it would cause a lot of turbulence in the lending market as banks may require time to notify clients on changes before passing them on.
Equity’s move also indicate the heightened competition in the banking sector as lenders take positions to safeguard and even acquire new market share.
On August 10, banks under their lobby, the Kenya Bankers Association (KBA) had presented a united front by submitting a memorandum of understanding to the CBK with a view of stopping the Banking Amendments Bill sparking fear of collusion.
The banks have since changed tack. Co-operative Bank made the bold move as the first to announce application of the 14.5 per cent cap soon after the bill was signed into law.
The bank, however, did not initially indicate that the caps would apply to old loans, which was quickly picked up by CFC Stanbic and KCB who said the rate would apply to existing facilities.
Commercial Bank of Africa (CBA) came up with a market shaking pronouncement saying it would use the Kenya Banks Reference Rate, currently at 8.9 per cent and not the CBR, to set a lending cap.
CBA, however, reversed the decision after CBK clarified CBR would be the base rate.
In a bid to reduce exposure, the country’s biggest bank by asset, KCB, said the rate cap would not apply to mobile based micro loans.
Soon after Equity Bank announced that it will include mobile phone-based loans and KCB adjusted mobile loan rates down.
The leading issuer of micro-loans CBA though maintained mobile products rates would remain as they were transactional fees exempt from the caps. Co-op Bank has remained silent on their mobile based product, M-Coop cash.
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