Banks rally to lower interest rates amid cap threat
Kenya Bankers Association (KBA) chief executive officer Habil Olaka. The banking industry lobby had earlier urged President Uhuru Kenyatta not to endorse the Bill. FILE PHOTO | DIANA NGILA
What you need to know:
The lenders say they will effectively reduce the interest rates and notify their clients of the same immediately in line with the Kenya Bankers Reference Rates (KBRR).
They have also proposed a raft of initiatives that will see the cost of loans come down including risk-based lending that will see credit scoring of loan borrowers adopted.
Kenyan lenders have moved to reduce the cost of borrowing just days before President Uhuru Kenyatta is set to make a decision on signing a contentious Bill meant to control interest rates.
This is after the banks, through the Kenya Bankers Association (KBA) umbrella body, submitted a memorandum of understanding to the Central bank with a view to bring down the rates.
KBA chief executive Habil Olaka said that the banks will effectively reduce their rates and notify their clients of the same immediately in line with the Kenya Bankers Reference Rates (KBRR) reduction that was done three weeks ago.
“Within the next one year, we will work on enhancing business models across the sector geared towards reducing interest rates for our customers,” Mr Olaka said.
The lenders have also proposed a raft of initiatives that will see the cost of loans come down including risk based lending that will see credit scoring of loan borrowers adopted.
The banks have also committed to boost lending through allocating Sh30 billion to small- and medium-sized enterprises (SMEs) at concessionary rates that don't exceed 14.5 per cent, with Sh100 billion given to women and youth headed enterprises.
“We expect banks to start using the credit reference bureaus framework on credit scores together with the product type and loan tenures to start classifying their borrowers into either low, medium of high risk categories,” Mr Olaka said.
KBA chairman Lamin Manjang, who is also the chief executive of Standard Chartered Bank, said that these are some of the market driven prescriptions to bring down the cost of credit and effectively self-regulate.
“Enforced disclosures of interest rates and total cost of borrowing are some of the initiatives that are geared towards achieving these,” Mr Manjang said.
The banks' move is seen as reaction to the lawmakers' threat to cap interest rates on a Bill that is awaiting the presidents direction.
President Uhuru Kenyatta is expected to make a decision the bill before Friday this week.
If the Head of State endorses the Bill, lending rates in the country would be capped at 14.5 per cent based on the current Central Bank Rate (CBR) of 10.5 per cent.
“This memorandum can be monitored and banks can be held accountable. It is not a legally binding document, but when you make a commitment to the regulator, it shows commitment and that is what we are doing to the public” Mr Manjang said.
