Banks in push to fight CBK loan rates freeze

Banks have now enlisted their lobby, the Kenya Bankers Association (KBA) to push the sector regulator to approve the loan pricing models that are supposed to guide them in lending following the removal of rate cap.

The Central Bank of Kenya (CBK) had asked banks to submit new loan pricing formulas that would be the basis of setting interest rates on new credit following the scrapping of lending rate controls on November 7, 2019.

However, the regulator is yet to give the approvals more than a year since the law paved the way for banks to start pricing loans based on individual applicant’s risk profile.

Banks have made individual applications to the CBK but the pending approval has now pushed them to step up the push for approval by turning to KBA—the banking sector lobby— to resolve the stalemate.

Many banks say that they are yet to transition into the new pricing models, which are supposed to give them the flexibility to lend to high-risk customers at rates that the defunct price controls would not allow.

KCB group chief finance officer Lawrence Kimathi says KBA is in discussion with the regulator and hopes it is something that should be “quickly resolved.”

“This conversation is still happening at industry level. It has been picked up by the KBA. From a priority point of view, not sure it was a priority for 2020 in the environment we were in,” said Mr Kimathi.

Lenders have had to continue operating as if they are still under lending rate controls to avoid reprisal from the regulator in the absence of approved formulas.

The inability to price risk in lending decisions threatens to shut out many prospective borrowers as banks seek to reduce their exposure from already large defaults brought by the Covid-19 pandemic.

Standard Chartered Bank Kenya chief finance officer Chemutai Murgor says the lender has had “good conversations” with CBK and hopes for a positive outcome.