Small and mid-sized banks have taken the lead in cutting minimum lending rates as their larger counterparts hesitate.
KCB Group is the only large lender, among the big six, to have publicly announced a rate cut effective this year compared to about 10 small and mid-sized banks.
Lending rates have, however, been on a downward trend since the second half of last year although they have lagged behind the dramatic fall in the inflation rate as well as the cost of funds as reflected in the Central Bank of Kenya’s policy rate.
On Monday, NIC Bank cut its base rate to 18 per cent from 19.5 per cent effective next month.
In 2011, the lender was ranked the 11th largest among the country’s 43 banks and the fifth largest in the mid-sized category in terms of market share.
Prime Bank, Fina Bank, Eco Bank, and I&M Bank are among those that have published advertisements showing that they will be effecting rate cuts between February 1 and February 15, while others have been communicating directly with their clients.
Kenya Bankers Association (KBA) chief executive officer Habil Olaka said that some lenders had moved quicker than others to lower their rates to gain competitive advantage, while others had adopted a more conservative approach.
“Currently, banks are lowering their loan rates and have done so consistently since June 2012, including banks that hold the largest market share in terms of loans and deposits.
"As recently as the beginning of January, some announced a base rate reduction while others did so in December,” said Mr Olaka.
KCB Group cut its base rate to 17 per cent from 19 per cent and its residential mortgage rate to 16 per cent from 18 per cent effective January 1, a week and a half before CBK announced a cut in its benchmark rate to 9.5 per cent from 11 per cent.
Banks ordinarily add a premium on their base lending rates, which means that their cost of loans is normally a few percentage points higher than the announced base rates.
In December, the average lending rate was 18.15 per cent, according to CBK data.
Inflation dropped 3.2 per cent in December, while the cost of funds for banks has been on a decrease to the current average of 6.8 per cent.
The last time Barclays Bank announced a rate cut was last September when it brought down its benchmark rate to 19.5 per cent.
Standard Chartered and CfC Stanbic Bank announced similar cuts in the same month, dropping their base rates to 18.5 and 19 per cent respectively, also effective in October.
Recently, Prime Bank said that its base lending rate would drop to 17.5 per cent from the beginning of next month, while Fina Bank, Eco Bank, and I&M Bank said that their rates would be set at 17.75, 18.5, and 18 per cent respectively next month.
The Business Daily established that other banks such as Equatorial Commercial Bank, UBA, Habib, and Victoria Commercial Bank had communicated directly to their clients on the rate cut.
Two weeks ago, CBK said that the cuts in the CBR had resulted in a slight decline in banks’ average lending rates and that the number of loan applications increased by 32.5 per cent to 97,756 in November, from 73,770 in October last year.
“We’ve seen banks announce a reduction that takes effect on February 1. You should expect that more banks may move to lower their loan rates with improving macro-economic conditions,” said Mr Olaka.
He said that other than the CBR, the cost of funds, operating cost structures, and credit risk also play a role in determining lending rates.
He said that the outlook remained positive, adding that banks would continue to lower their lending rates to spur credit and ensure sustainability of economic growth.