Borrowers spoilt for choice as CBK report shows lending rates

Central Bank of Kenya Governor Kamau Thugge. [File]

New data from the Central Bank of Kenya (CBK) has highlighted significant disparities in loan interest rates among the country’s Tier I banks, underscoring a competitive yet complex lending landscape.

While Diamond Trust Bank (DTB) emerges as the lender offering the lowest rates across personal, business, and corporate sectors, the broader picture reveals a mix of strategies that could influence borrowers’ choices.

According to the CBK’s Commercial Banks Weighted Average Lending Rates report for July, DTB offers personal loans at 11.14 per cent, business loans at 12.40 per cent and corporate loans at 11.45 per cent.

In contrast, Premier Bank stands out with a flat rate of nine per cent across all loan categories, regardless of maturity period, making it the most affordable option.

However, the market also features stark contrasts, with Credit Bank charging the highest rates—23.22 per cent for personal loans, 19.6 per cent for business loans, and 20.61 per cent for corporate loans.

Such extremes highlight the varying risk appetites and operational strategies of different banks.

Competitive rates

Among the largest banks, Co-operative Bank continues to offer competitive rates, with personal loans at 15.54 per cent business loans at 16.14 per cent and corporate loans at 15.63 per cent.

KCB Bank and Equity Bank, while also prominent players, charge higher rates of 18.24 per cent and 16.93 per cent for personal loans, respectively.

The figures suggest that lenders are navigating a challenging economic environment shaped by the central bank’s monetary policy.

In 2023, CBK’s Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) by 375 basis points to 12.5 per cent, a move aimed at curbing inflation.

While many banks responded by increasing their lending rates, Co-operative Bank notably maintained a stable rate of 13 per cent until November, defying market trends.

This decision reflects the bank’s focus on co-operatives and SME sectors that play a critical role in Kenya’s economy. Co-operative Bank managing director Gideon Muriuki attributed this strategy to a strong loan repayment record and reduced default risk associated with their target check-off scheme loans.

“It is a deserved reward for customers who have maintained a consistently good credit record,” he stated, highlighting the importance of borrower reliability in determining lending rates.

As the Kenyan banking sector continues to adapt to economic pressures, the contrasting approaches to interest rates among Tier I banks may create opportunities for borrowers seeking more favourable terms.

CBK’s Credit Officer Survey for the quarter ended June 2024 indicated that the banking industry’s liquidity increased significantly during the period, with banks expected to increase lending activities in the quarter to September.

The higher liquidity was mainly from increased deposits, which rose by 61 per cent, and loan recovery that contributed 21 per cent of the cash.

“With the improved liquidity, it is expected that in the third quarter of 2024, credit to private sector will increase as several banks intend to deploy the additional liquidity towards lending to the private sector,” said CBK in the report.

Invest funds

Lenders were also expected to use the funds on other investments including Treasury bills and bonds, interbank lending, and offshore.

CBK undertakes the survey every quarter among senior credit officers of banks to identify the potential drivers of credit risk.

Banks have already reported their earnings for the half-year to June, with KCB Group’s profit after tax rising 86.9 per cent to Sh29 billion on higher income.

Kenya’s largest lender by asset size reported a net profit of Sh15.5 billion in a similar period last year.

Equity posted a 12 per cent increase in net profit to Sh28.5 billion from Sh25.4 billion last year, while Co-op Bank reported a seven per cent jump in net earnings to Sh13 billion for the first six months of the year.