Editorials

Banks should comply with mortgage disclosure rules

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Business loans concept. FILE PHOTO | NMG

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Summary

  • While a typical loan is charged between seven and 15 percent, a home loan also attracts additional legal, insurance and valuation costs that are borne by borrowers, making it costly.
  • Customers are not only interested in competitive products but also in transparency and integrity.

The disclosure that 12 banks, among them some of the biggest ones in the market, have been engaging in predatory practices is disappointing.

The Competition Authority of Kenya (CAK) said its review of home loan contracts for 27 banks revealed that 12 of them provided mortgage clients incomplete, unclear and unfavourable information.

The hidden mortgage costs, including valuation, origination, booking, mortgage and title transfer, commissions, brokers’ fees, legal fees, insurance and stamp duty, can exceed 10 percent over and above the mortgage rate.

While a typical loan is charged between seven and 15 percent, a home loan also attracts additional legal, insurance and valuation costs that are borne by borrowers, making it costly.

About 10 banks control the Sh232 billion home loans sector. They include KCB, NCBA, Absa Bank Kenya and DIB Bank Kenya, which were among the 12 flagged by the anti-trust watchdog.

The banking business is based on trust. Customers are not only interested in competitive products but also in transparency and integrity. This involves ensuring that clients understand all the information relating to the services they are obtaining.

The competition law stipulates that a consumer should be informed of all charges and fees payable before the same is imposed. Lack of full disclosure is as serious as hoodwinking customers.

While most banks approach compliance as a duty, lapses destroy customers’ confidence.

The lenders have an obligation to enforce ethical practices in their business. It is a shame for the big banks that they too have to be forced to comply with the law when they should be setting the standards.

The competition watchdog said the banks had been ordered to review home loan contracts. Eleven of them complied, while one requested additional time.

We hope banks will conduct their business transparently and not just manage the reputations of their brands. Let them make full disclosures to customers.

Across the world, there is a growing demand for ethical businesses that do not prioritise aggressive profit growth over values.