In its Markets Perception Survey report for July, the CBK says that some respondents indicated that loan repayment terms have been altered following the rate cut to ensure that borrowers continue paying the same amounts in monthly instalments as before.
The CBK conducts the survey every two months, prior to the Monetary Policy Committee (MPC) meeting, to gauge expectations of banks and non-bank private sector firms on selected economic indicators.
The survey covers all commercial and microfinance banks, as well as a sample of non-bank private sector firms.
A section of the affected consumers have asked the regulator to ensure that banks do not alter repayment terms of loans, and allow the lower CBR to reflect on existing loans.
Some banks have failed to pass benefits of the cut in the base lending rate to borrowers, a new report by the Central Bank of Kenya (CBK) says.
In its Markets Perception Survey report for July, the CBK says that some respondents indicated that loan repayment terms have been altered following the rate cut to ensure that borrowers continue paying the same amounts in monthly instalments as before.
“Respondents indicated that there were challenges with respect to the management of existing loans when the CBR was reduced,” says the CBK survey.
“Some banks shortened the repayment period and left loan repayments unchanged, hence offering no immediate relief from the lower rates to borrowers.”
The CBK conducts the survey every two months, prior to the Monetary Policy Committee (MPC) meeting, to gauge expectations of banks and non-bank private sector firms on selected economic indicators.
The survey covers all commercial and microfinance banks, as well as a sample of non-bank private sector firms.
A section of the affected consumers have asked the regulator to ensure that banks do not alter repayment terms of loans, and allow the lower CBR to reflect on existing loans.
“When the interest rate cap came into force I had thought I would benefit but I have not,” said a borrower who sought anonymity. “All my bank did was to alter my loan repayment tenure without my approval.”
The CBK last month cut the benchmark lending rate by 0.5 percentage points, ideally signalling a drop in the cost of loans by a similar margin to the delight of borrowers.
The MPC fixed the benchmark rate at nine per cent from 9.5 per cent, meaning banks are now required to charge borrowers a maximum of 13 per cent interest on loans.
This was the third time the banking sector regulator cut the signal rate since the cap was enforced on loans two years ago.
The MPC said that its decision was informed by the need to boost economic activity.
Despite a push by the banking regulator to infuse transparency in financial sector pricing, a study released last year by the Financial Sector Deepening (FSD) Kenya raised the red flag over hidden costs charged by banks to unsuspecting consumers.
The Consumers Federation of Kenya (Cofek) last year faulted the CBK for failure to crack the whip on rogue lenders, which were levying illegal charges on customers.
In October 2016 the CBK ordered banks to stop charging their customers any new levies following the coming into force of a new law that put a ceiling on interest rates charged.
