Two commercial banks on Tuesday moved with speed to put their lending rates in line with the Central Bank of Kenya’s (CBK) Monday decision to cut the benchmark rate by 0.5 per cent.
Co-operative Bank of Kenya #ticker:COOP and KCB Group #ticker:KCB said they had immediately cut lending rates for new loans in a move that could force their rivals to follow suit.
The lenders said new loans would be priced at the new maximum rate of 13.5 per cent beginning March 20, offering immediate relief to customers.
Co-op Bank said interest on existing customer deposits will also be immediately payable at the new rate of 6.65 per cent, down from seven per cent.
Existing loans will move to the new rate within the 30-day period allowed by consumer protection laws.
Barclays Bank of Kenya #ticker:BBK did not respond to a request for comment while Equity Bank #ticker:EQTY, through a spokesperson, said it would effect the changes in due course.
This is the first time that the CBK has cut the signal rate since legal caps on the cost of credit were introduced one and a half years ago and customers are therefore keen to see the pace at which the lenders will comply.
Habil Olaka, the chief executive of the Kenya Bankers Association (KBA), said the speed with which the lenders effect the rates depends on versatility of their individual systems and their commercial strategy.
“Banks need to make specific adjustments to their systems to reflect the new rates. There are those who can make the shift quickly while some may take longer,” Mr Olaka said.
“There are lenders who may rush to effect the new rate in order to capture market share by attracting new customers. However, it is okay as long as the change is done and communicated within 30 days.”
The interest rate capping law, which became effective in September 2016, provides that the banks lend at a maximum of four percentage points above the Central Bank Rate (CBR).
Depositors are also to be paid a minimum interest of 70 per cent of the CBR.
This legislation has until now seen commercial banks advance loans at a maximum interest rate of 14 per cent, down from highs of up to 25 per cent before the rates cap.
The MPC said Monday’s decision to fix the benchmark rate at 9.5 per cent was informed by the need to support economic activity in the changing business environment.
Patrick Njoroge, the Central Bank of Kenya governor, who chairs the MPC, said a relatively stable forex market, a narrower current account deficit and a build-up of forex reserves that continue to cushion the economy from unforeseen shocks informed the decision.
Even as efforts to repeal or amend the law gather pace, bank customers will over the next 30 days enjoy the benefit of lower loan repayments, however modest they may be.