Ruto says lenders agreed to cut mortgage rates

What you need to know:

Deputy President William Ruto said there had been consultations between the Treasury and bankers with a view of addressing the high interest rates paid by customers.
But a former banker with knowledge of the current Treasury thinking said banks could only agree to the government’s proposal if they receive cheap State deposits and ministerial cash intended for projects.

Some banks have agreed to reduce mortgage rates to single digits in the next three months, Deputy President William Ruto reported on Tuesday.

He said there had been consultations between the Treasury and bankers with a view of addressing the high interest rates paid by customers.

Mr Ruto said the current mortgage rates stood at 12-13 per cent which was a decline following earlier consultations between the government and the bankers.

“There has been consultations between the government and the bankers. A number of the banks have agreed to bring down interest rates in the next three months to single digits,” said Mr Ruto.

But a former banker with knowledge of the current Treasury thinking said banks could only agree to the government’s proposal if they receive cheap State deposits and ministerial cash intended for projects.

Kenya Bankers Association CEO Habil Olaka could not be reached for comment on the reported agreement.

Currently, banks are using the Kenya Banks Reference Rate of 9.13 per cent as the base rate for the entire industry with mortgages attracting about 3.05 percentage mark-up on average.

READ: House prices stall as high mortgage rates lock out first time

Mr Ruto noted the level of savings in the country was low, a situation that meant loanable funds are in low supply compared to some countries.

“Our level of savings is low. We have only 11 per cent of the gross domestic product in savings. We need to do better than this,” he said.

Mr Ruto said savings in Europe stand at 25 per cent while in Asia it is at 30-35 per cent of the gross domestic product.

“We should cultivate the culture of saving if we are to develop as a country,” he said, noting his oft-expressed emphasis on the importance of the new pension laws.

Kenya has recently enacted the National Social Security Fund Act compelling all employers and employees to contribute six per cent each towards a pension scheme, making a total of 12 per cent of an employee’s earnings.

But Mr Ruto said other countries had even higher savings rates through their pension schemes. In defined contribution schemes in Tanzania the pension rate is at 20 per cent by law, while in Uganda it is at 15 per cent with the UK and Brazil at 25 per cent each.

The Deputy President spoke at the in Nairobi where Safaricom was named top taxpayer, followed by the Teachers Service Commission and Ministry of Interior and National Coordination third.