Commercial banks are tightening loan request approvals, making it harder for borrowers to access credit. Central Bank of Kenya (CBK) yesterday said there was a sharp rise in the number of loan applications since August – when the law capping interest rates came to effect.
But over the same period, the lenders have granted fewer loans, a pointer to the fact that the banks are unwilling to take the risk of providing credit at the prevailing interest rates. CBK Governor Patrick Njoroge, however, declined to link the interest rate regulation to the slowdown in new loan approvals, claiming the banks were realigning their business models.
“Slowdown in credit growth is not related to the interest rate cap law,” said Dr Njoroge of the seemingly alarming credit squeeze where several banks have reported shrinking loan books.
“Banks have been adjusting their business models since the new regime came in,” said the CBK boss in dispelling fears that the credit contraction was a result of interest rate regulation.
Dr Njoroge attributed the stricter lending criteria among banks to internal decisions taken in the last financial year, where reporting requirements by CBK have translated into inflated bad and doubtful loans among all lenders.
