Banks begin to lower cost of credit amid Treasury pressure

NCBA Bank headquarters Upper hill Nairobi. [File, Standrda]

Commercial banks have started lowering lending rates following a push by the government for lenders to pass to Kenyans the benefits of cheap loans.

This follows the lowering of the Central Bank Rate (CBR) to 12 per cent early this month, which the Central Bank had hiked to a high of 13 per cent as it sought to bring down the inflation rate.

NCBA yesterday said it had lowered its interest rates following lower CBR.

“In view of the recent Kenya Central Bank Rate downward revision, we wish to advise that NCBA Bank Kenya’s base lending rates will be revised downwards to 16.91 per cent for Kenya shilling and 11.09 per cent for US dollar-based loans,” said the lender in a notice to its customers.

Despite the lowering of the key lending rate, banks have been slow to reduce the cost of loans they are advancing to customers, citing the rising cost of funds and deteriorating quality of loan portfolios.

The reluctance by banks to lower interest rates has caught the eye of authorities and on Tuesday this week, President William Ruto urged banks to lower the cost of credit.

He said high rates for commercial loans by banks were hurting the economy, adding that the State-backed Hustler Fund targeted by his administration at informal traders, popularly known as hustlers, had shown it is “still possible (for any commercial bank) to do business even with single interest rates.”

“The banking sector in Kenya is the most profitable globally, but I also want to tell you that you can do even better by lending to more people at lower rates,” said the President at a forum convened by the Kenya Bankers Association.

Equity Bank had earlier in September reduced its reference rate from 18.24 per cent to 17.83 per cent, a move aimed at stimulating credit uptake amid a challenging economic landscape.

“We wish to inform our customers and the general public that we have reduced Equity Bank’s Reference Rate to 17.83 per cent,” the lender had told its customers on September 9.

CBK had since late 2022 up to March this year been increasing the CBR in a bid to tame inflation that was at the time heading towards 10 per cent. The rate of inflation has since dropped to 3.6 per cent in September. CBK has been reducing the CBR, which it lowered to 12 per cent on October 8 from 12.75 per cent.

Despite the CBR reduction, commercial bank lending to the private sector decelerated sharply, with growth dropping to 1.3 per cent in August from 3.7 per cent in July.

The contraction is attributed to rising non-performing loans, which currently stand at 16.7 per cent of gross loans, up from 16.3 per cent in June. 

On Tuesday, National Treasury Cabinet Secretary John Mbadi said the loan rates are exorbitant, which has been hurting the economy.

He noted that while banks have promised to lower the cost of credit, they have been slow to act even as he noted the CBR should be much lower than the current 12 per cent.

“If you ask me, the CBR rate should be at 10 per cent or even a single digit and not 12 per cent. What makes us think that banks cannot make money by charging single-digit interest rates? They can,” he said.

On Tuesday this week, Ruto weighed in on the cost of credit, urging commercial banks to consider lowering their lending rates to help spark credit growth.