Co-operative Bank has cut interest rates for personal loans and asset financing in a move targeting select salaried borrowers such as civil servants who have a good repayment history.
The lender said on Thursday, without specifying the number of qualifying customers, it has cut the rate from 14 to 13 percent per year, effective April 1.
Co-op Bank said the cut was in response to improved loan repayment records and reduced default risk that the targeted check-off scheme loans have recorded over time.
Salary check-off loans are credit facilities provided to individuals who are employed and use their salary as security for accessing loan facilities.
The move bucks the trend in the sector where interest rates have been increasing amid the continued switch to risk-based pricing models and the rise in the base lending rate to 9.5 percent —the highest level in five years.
Qualifying customers have been receiving text messages to inform them about the development.
“Dear customer, You can now top-up your existing personal loan at a rate of 13 percent per month instead of 14 percent. Please apply at any Co-op Bank branch,” said Kenya’s third-largest bank in a notice.
Co-op Bank says the main beneficiaries of reduced rates include employees of key corporate and institutional entities such as Kenya Defence Forces, Kenya Police Service and Teachers Service Commission who enjoy job stability.
Also on the list of beneficiaries will be employees of government ministries, the National Assembly and key state corporations such as Kenya Revenue Authority and Kenya Electricity Generating Company.
The bank’s shareholding works in its favour in banking the targeted groups. Co-op Bank is 64.56 percent owned by Saccos, with many drawing memberships from the large pool of government employees.
Saccos such as Harambee and Kenya Police all own stakes in the bank indirectly through their investment vehicle Co-op Holdings Co-operative Society Limited.
The lender’s loan book grew by 9.4 percent to Sh339.4 billion in the financial year ended December 2022, from Sh310.2 billion a year earlier.
Consumer and household loans hit Sh196.96 billion from Sh173 billion while mortgage and asset finance books grew to Sh65.36 billion from Sh55.76 billion.
Co-op Bank said, without giving timelines, that it was working to extend the reduced interest rates beyond the current target customer segments to include all borrowers with good credit history.