More lenders issue notice of plan to cut loan interest rates

Habil Olaka (right), the chief executive officer of the Kenya Bankers Association, with its vice-chairman John Gachora, who is also the chief executive officer of NIC Bank, at a press briefing on the regulation of interest rates at Hilton Nairobi hotel on July 28, 2016. PHOTO | COURTESY

What you need to know:

  • National Bank of Kenya, Family Bank, Bank of Baroda and Bank of Africa put out notices last Friday saying the reduction in the rates will apply from later this month or early next month.
  • In the previous week, Commercial Bank of Africa, StanChart and I&M said they would lower their lending rates.

Four more commercial banks have given notice of their intention to lower loan interest rates by up to a percentage point as control of lending and deposit rates looms.

The National Bank of Kenya, Family Bank, Bank of Baroda and Bank of Africa put out notices last Friday saying the reduction in the rates will apply from later this month or early September.

In the previous week, Commercial Bank of Africa, StanChart and I&M said they would cut their charges.

The lenders said they were slashing the loan rates following reduction of the benchmark Kenya Banks Reference Rate (KBRR) to 8.90 per cent from 9.87 per cent – a 0.97 percentage fall.

For National Bank, the decline in the rate will apply from the beginning of September. “Effective 1st September 2016 National Bank will lower its interest rates by 1 per cent on all Kenya shilling loans,” the bank said.

Family, Bank of Baroda and Bank of Africa will adjust their rates downwards from August 25, which will be exactly one month since the MPC lowered the benchmark.

“Effective 25th August 2016, Family Bank will lower its interest rates in line with the 0.97 per cent reduction of Kenya Banks Reference Rate (KBRR) by the Central Bank of Kenya,” said Family Bank in its notice.

“We will be lowering our interest rates effective 25th august 2016 in line with the 0.97 per cent reduction of the KBRR by the Central Bank of Kenya,” said Bank of Africa in a notice that had nearly the same wording as that from Bank Baroda.

Besides cutting lending rates, commercial banks have offered Sh30 billion in soft loans for small and medium enterprises and will also eliminate charges for closing accounts to assuage the law makers.

One analyst though said MPs are themselves not suffering from the high interest rates regime since they obtain loans at preferential rates.

“I think banks are willing to negotiate, but I don’t think MPs themselves care about interest rates, because they get preferential interest rates,” said the analyst who is not authorised to speak on the matter.

The KBRR is adjusted every six months, but was not changed in January this year as the CBK argued that it was not being taken seriously by commercial banks. CBK governor Patrick Njoroge said it had become a poor tool for directing monetary policy since banks were ignoring it.

Dr Njoroge had said the regulator would seek to develop a more effective tool so as to transmit its decisions through the financial system and into the real lending rates.

However, in its July 25 meeting, the MPC cut the KBRR by 0.97 percentage points in what was interpreted as a chance to guide commercial banks to slash lending as legislators intensified pressure on them to bring down the price of money.

“The CBK has revised the KBRR to 8.90 per cent from 9.87 per cent, effective from July 25, 2016,” said Dr Njoroge in a statement following the July 25 meeting.

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