Two small banks announced cuts in minimum lending rates on Wednesday, even as the large lenders that command a high percentage of the mass market remain hesitant to announce reductions in tandem with falling inflation and Central Bank policy rate.
Oriental Commercial Bank and Dubai Bank on Wednesday said that they would cut their base lending rates to 17.75 and 17.50 per cent respectively.
The two joined at least 10 other small and mid-sized lenders that have published similar cuts effective this year.
Oriental Commercial Bank, which was in 2011 ranked 37 in terms of asset size out of the industry total of 43 lenders with a market share of 0.31 per cent said that it would effect the lending rate cut beginning February 15.
Dubai Bank, ranked 43 with a market share of 0.15 per cent, said it would effect the review on February 1.
The two small lenders join Prime Bank, Fina Bank, Eco Bank and I&M Bank which have this year indicated that they would cut their base lending rates from next month while larger lenders with the exception of KCB Group have remained silent.
Munir Ahmed, the managing director of National Bank of Kenya said more lenders were likely to announce cuts in the cost of loans.
Lending rates have generally been on the decline since mid last year when CBK started bringing down the Central Bank Rate (CBR).
But while the CBR has dropped to 9.5 per cent from the December rate of 18 per cent, effective lending rate by banks has fallen at a slower pace to the current average of about 20 per cent.
“It is just a question of timing and speed of reaction. You are likely to see more banks announce rate cuts,” said Mr Ahmed during an online chat hosted by the industry lobby, Kenya Bankers Association (KBA).
The KBA chief executive Habil Olaka said that some lenders had moved quicker than others in lowering their rates to gain a competitive advantage, while others had adopted a more conservative approach.
On Monday, NIC Bank said that it would bring down its base rate to 18 per cent from 19.50 per cent while others such as Equatorial Commercial Bank, UBA, Habib and Victoria Commercial Bank have also communicated directly with their clients.
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 from January 1.
The last time that the big lenders Standard Chartered Bank, Barclays Bank and CfC Stanbic Bank announced rate cuts was in September last year.
Equity Bank and Cooperative Bank have also remained silent.
Two weeks ago the banking regulator said that 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.