Markets & Finance

CBK to unveil new loan pricing instrument


Central Bank of Kenya Governor Patrick Njoroge. PHOTO | FILE

The Central Bank of Kenya will unveil a pricing mechanism that allows borrowers to compare different bank loan costs on standardised parameters, rather than on interest rates alone.

The Annual Percentage Rate (APR) pricing model will further allow consumers compare lending rates offered by banks on a common computation model.

The CBK, however, does not have a specific date of introducing the mechanism. This move follows failure by the Kenya Bankers Reference Rate (KBRR) to tame interest rates.

“Very soon the will have an APR facility where borrowers will be able to compare what banks are offering and what the true market rate is,” governor Patrick Njoroge told Parliament last week.

The APR captures the one-off loan processing fee, insurance cost, security charging expenses and the actual interest charged on a loan facility.

The KBRR is currently set at 9.87 per cent with banks allowed to load a premium on the base to cater for their operating expenses and cost of cash.

“I have made it clear to the banks that the high lending rates will in the long run hurt the economy of the country and this will affect them too,” he said.