Banks lending charges in Kenya at three-year low

NAIROBI, Dec 4 (Xinhua): Commercial banks lending rates in Kenya have hit a three-year low as the government strives to make the cost of credit affordable.
New data from Central Bank of Kenya (CBK) and Kenya National Bureau of Statistics (KNBS) showed Thursday that banks in the East African nation are now charging borrowers an average of 16 per cent on loans. This is a drop of more than 1 per cent from the January position, where the rates stood at 17.03 per cent.
At 16 per cent, it is the first time in over three years that Kenyans are paying such a rate for credit. The last time the interest rates were at below 16 per cent was in October 2011, where the charges stood at 15.2 per cent.
Interest charges then rose steadily peaking at 20.3 per cent in June 2012 as inflationary pressure hit a high of 18 per cent. In 2013, the charges averaged between 17 per cent and 18 per cent.
For the better part of this year, the rates have stood at an average of 16.5 per cent before falling to 16 per cent in October.
Analysts attribute the fall of the interest rates to drop in inflationary pressure, rise in competition and introduction of a new loan pricing formula by the CBK.
Kenya's November inflation stood at 6.09 per cent, down from 6. 43 per cent on account of decline in food, housing, water, gas and electricity prices. Low inflation has made CBK maintain its benchmark rate at an average of 8.5 per cent.
The drop in East African nation's interest rates further signal that commercial banks are keen on cutting down the cost of credit following the implementation of a new loan-pricing formula known as the Kenya Banks Reference Rate (KBRR).
KBBR is based on averages of the CBK's indicative rate and the 91-day Treasury bill yield over six months. Banks are then expected to add a premium on the average based on their costs that include insurance and credit risk. CBK's yields on the 91-day bill stand at 8.6 per cent.
CBK came up with the loan-pricing formula to protect consumers by standardising the lending rates, which were varying from one bank to another.
The regulator noted that the financial institutions were raising money through customer deposits and lending the same at an exorbitant fee.
Kenya's Deputy President William Ruto has been at the forefront of pushing for drop in interest charges, noting that a single digit rate would enable private sector access cash and consequently boost the economy.
However, as the borrowing charge records a downward trend, the interest rate banks pay on savings is somewhat static, at an average of 1.5 per cent.