I&M Bank and Standard Chartered have the highest cost of credit among tier-one lenders in Kenya, with external or third-party charges proving a key differentiator in the cost of loans among the large banks.
The cost of credit website developed by the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) shows that a borrower taking a Sh1 million personal unsecured loan for one year from I&M will incur a total credit cost of Sh127,140.
A similar loan at StanChart carries a cost of Sh117,745, followed by Equity Bank at Sh114,057 and Co-operative Bank at Sh111,929.
These charges are inclusive of interest on the debt and other internal and external charges such as bank fees, legal fees, insurance, and government levies.
The lowest cost of credit, according to the site, is on an Absa Bank Kenya loan at Sh76,147. It does not however indicate if there are bank and external charges on the loan.
The other four lenders charge between Sh95,807 (DTB) and Sh107,207 (KCB) for their loans.
The tier one lenders have 12.65 million loan accounts on their books, representing 97 percent of the total in the banking sector, as per the CBK’s bank supervision report for 2021. They have also cornered 75 percent of total industry deposits and assets.
The publication of information on the cost of credit for personal loans and mortgages on a common web platform was started in mid-2017, with the intention of making it easier for customers to choose between lenders when seeking credit.
Prior to this, comparison of loan prices between different banks had been difficult for bank customers, whose only option was tedious physical movement from one institution to another when shopping for a loan.
From the current published loan prices, there is a limited spread in terms of interest on loans among the tier one banks, with the variance coming from the bank charges and external fees.
KCB, Equity, NCBA, and DTB charge interest at 13 percent, with I&M at 14.3 percent, Stanchart at 14 percent, while Absa and Stanbic levy 13.77 percent, and 13.65 percent respectively.
DTB published the lowest non-interest costs at Sh24,000, while the highest charges are on I&M loans at Sh48,000.
The lenders have been turning to non-funded income from such charges to drive revenue due to their limited capacity to raise interest rates before having their risk-based pricing models approved by the CBK.
Only Equity Group has disclosed that it has received the pricing approval, but yesterday, the CBK said that more than half of the banks have already had their risk-based models approved or signed off with the regulator.
These approvals will allow banks to vary interest on credit according to the risk profile of a borrower, with an expected outcome of improved credit access across the economy.