Barclays cuts loan cost after CBK base rate reduction
A Barclays Bank branch on Muindi Mbigu Street in Nairobi. The bank has reduced the cost of borrowed money by a 0.6 percentage point. PHOTO | FILE
What you need to know:
Barclays Bank said it had reduced the cost of loans borrowed on variable terms by a 0.6 percentage point in a notice sent to borrowers through text messages on Monday.
Last week, Barclays announced a promotional mortgage rate of 11.9 per cent underlining its aggressiveness to grow its loan book which has been stagnant in recent years.
Barclays Bank has cut its loan rates after the Central Bank of Kenya (CBK) lowered the standard base rate last month, turning the spotlight on other lenders.
The bank said it had reduced the cost of loans borrowed on variable terms by a 0.6 percentage point in a notice sent to borrowers through text messages on Monday.
The bank becomes the first top lender to cut the rate and match the new formula introduced by the Treasury for use in pricing loans, dubbed the Kenya Banks Reference Rate (KBRR).
Under the formula, which is reviewed every six months starting last June, bank lending rates are linked to the KBBR which is based on averages of the monetary policy rate and the 91-day Treasury bill yield over six months.
Banks are allowed to add a premium based on business costs, such as electricity, and the borrower’s credit profile.
“The Kenya banks reference rate reduced from 9.13 per cent to 8.54 per cent. Your loan term has been revised downwards,” said the bank in an SMS text sent to its customers.
The bank said the cut will be equivalent to the drop in the KBRR.
Most loans in Kenya are variable, meaning their terms can be changed at the pleasure of banks unlike fixed rate loans whose price does not change, thus making them predictable.
Since introduction of the standard base rate last June, most banks have opted to hold their lending rates constant. Johnson Nderi, Corporate Finance and Advisory manager at ABC Capital, said Barclays could be looking to grow its market share with the price cut, adding that other banks cannot be compelled to take a similar cut.
Last week, Barclays announced a promotional mortgage rate of 11.9 per cent underlining its aggressiveness to grow its loan book which has been stagnant in recent years.
“It (the decision to cut the rate) depends on a bank’s cost of funds,” said Mr Nderi. A drop in lending rates will leave borrowers with more cash to spend.
Interest rates offered by banks differ based on the type of loan and the bargaining power of the client. A client’s bargaining power is usually determined by the size of the loan applied for.
Last week CBK issued a statement saying it was preparing to publish interest rates charged by different lenders in an effort to create more competition in the financial market.
“Central Bank will publish comparative data on ‘K’ for various loan products offered by banks. This will facilitate decision-making by customers and promote competition in credit pricing,” CBK said in the statement which did not give timelines.
The standard base rate is calculated as an average of the 91-day Treasury bill rate and the indicative Central Bank Rate.
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