Lending Rates in Kenya: The Central Bank of Kenya has been reported to the International Monetary Fund by local bank chief executive officers. The bank CEOs have reported CBK to the IMF for refusing to allow them to increase cost of loans.
This has been revealed by the IMF, which has acknowledged receive protest letters from the local bank executives. “Banks consider that approvals could be expedited. Banks’ credit pricing models require approval by the CBK, and banks must justify charging higher rates to customers presenting higher credit risks,” the IMF said.
The local executives say that while the CBK had asked banks to submit loan pricing formula after the lifting of interest rates cap on November 7, 2019, the CBK has failed to approve any of the submitted formulas. This has in turn forced local lenders to continue giving loans within the same rates as during the interest rates cap era. For example, the lending rates averaged 12.38 percent in November 2019 when the rate cap was repealed with the Central Bank Rate (CBR) then at 8.5 percent. In October 2021, the lending rates averaged 12.12 per cent.
The banks further allege that the delay in moving to risk-based lending has forced many of them to deepen investment in government securities and restrict lending to high-quality customers with a lower risk of default.
“With an ample capital position and strong deposit growth, banks are positioned to extend credit to the economy to support the recovery, though they may face some headwinds. Banks’ holdings of government securities stand at a relatively high 31 percent of assets and are expected to rise further in the coming year,” the IMF said.
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However, the CBK has previously cautioned local banks against reverting to pre-interest rate cap charges that were as high as 28 per cent.