Equity Group chief executive James Mwangi yesterday welcomed the Central Bank of Kenya's (CBK) recent decision to lower interest rates, adding that the bank itself also plans to pass on these benefits to customers by reducing its own interest rates within the next seven days.
He said the government’s plan to wean itself off local borrowing would also boost efforts to stimulate lending by forcing lenders to prioritise individual customers over lending to the government.
“We are very excited by what the Central Bank of Kenya is doing focusing on lowering its appetite by reducing interest rates.
"When it was offering 18 to 17 per cent for Treasury bonds it had crowded out the private sector…the financial sector but with the lowering of interest rates we will see the reassignment of funding to the private sector and we hope that will accelerate,” said Mwangi during a briefing on the bank's third quarter financial results at Equity headquarters.
"We plan to cut our rates further and will issue a statement within the next seven days.”
He urged CBK, whose Monetary Policy Committee (MPC) will meet next on December 5, to lower the benchmark rate again this year to further stimulate borrowing.
“We hope to see further reductions in the benchmark rate before the end of the year to stimulate credit uptake."
Pressure has been mounting on commercial banks to lower interest rates, but many have maintained higher rates, sparking concern from President William Ruto and CBK governor Kamau Thugge.
The move by Equity Bank, along with pressure from the CBK and government, could lead to a more significant reduction in lending rates by additional banks, potentially benefiting Kenyan borrowers and fostering economic activity.
MPC cut the Central Bank Rate (CBR) from 12.75 per cent to 12.00 per cent in October, aiming to bolster economic activity amid declining inflation.
This followed another reduction of the CBR in August from 13 per cent to 12.75 per cent, as the CBK hopes to foster growth amidst a backdrop of declining inflation and a revised growth forecast.
The tightening of lending standards by banks is hurting the economy, as businesses and households are finding it more difficult to access credit.
This is leading to a further slowdown in economic growth and a rise in unemployment dealing a blow for government efforts to boost liquidity and access to capital for individuals and businesses.
Equity was the first to respond to the CBR cut by reducing interest rates on loans.
READ: Banks begin to lower cost of credit amid Treasury pressure
The lender said in September it had 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.
NCBA followed in October with a cut on its Kenya Shilling and dollar base lending rates.
Despite the CBR reduction, lending to the private sector has sharply declined with credit growth falling from 3.7 per cent in July to 1.3 per cent in August.
This contraction was largely attributed to an increase in non-performing loans, which rose to 16.7 per cent of gross loans in August, up from 16.3 per cent the previous month.
Historically, Kenyan banks have been quick to raise rates whenever the CBK increases the benchmark rate, often citing rising costs of funds as justification.
This has raised expectations that they would be equally responsive in lowering rates following the recent cut but banks have been reluctant.
“I would like to strongly urge the banks to lower their lending rates as soon as possible. This will be a win-win for both consumers, investors as well as the banks as it would stimulate economic growth by boosting credit to the private sector while at the same time addressing the rising non-performing loans of banks,” said Thugge recently.
“With inflation declining steadily and expected to decline and the CBK easing monetary policy there is absolutely no reason not to have lower interest rates by the commercial banks.”
The Kenya Bankers Association has countered that banks have already begun lowering rates, although the impact may not be fully reflected in weighted average interest rates yet.
However, a recent CBK survey suggests a cautious approach by banks, prioritising existing relationships with larger clients while limiting credit access for small and medium enterprises (SMEs).
National Treasury Cabinet Secretary John Mbadi sees lower interest rates as a key driver for increased economic liquidity.
This could stimulate growth across various sectors, especially as SMEs gain greater access to credit.