Anxiety as CBK checks for banks that harm consumers

The operations of commercial banks in the country are set for a review to check compliance with consumer protection rules, including pricing of services and products, as the regulator seeks to tame rogue players in the sector.

The Central Bank of Kenya(CBK) said the operations of all banks would be checked for any practices that amounted to wrongdoing toward consumers—triggering anxiety in the key economic sector.

“CBK seeks to conduct a market conduct survey whose objectives are to: enhance customer centricity, i.e., confirm whether the institutions have adopted business models that are aligned to the needs of their customers, including tailoring products that best serve their needs” it disclosed, adding that the survey would also evaluate the impact and status of implementation of various initiatives it had taken over the recent years to strengthen consumer protection.

A key focus of the review will be on the revised CBK’s prudential guidelines issued in 2013 whose main aim is to promote fairness and transparency in areas such as product pricing in the banking sector.

“The guidelines were intended to promote fair and equitable financial services by setting the minimum standards for banks dealing with consumers. It provides a clear framework for protecting consumers against the risks of fraud, loss of privacy, unfair practices, and lack of full disclosure” the banking sector regulator said in a tender call for a consultant to carry out the survey.

The guidelines, issued under the Banking Act, saw the launch of a Total Cost of Credit (TCC) portal in 2017 that allows customers to compare banks’ credit prices to make informed decisions. The portal provides information on lending rates and charges by banks to enable customers to make informed credit decisions.

The CBK guidelines also resulted in the adoption of a special charter for the banking sector in 2019 in the wake of the repeal of interest caps as part of a strategy to protect the consumer from greedy lenders.                       

“It is intended to address longstanding concerns about the high-interest rates charged by commercial banks, their poor customer service, and perceived insensitivity to the needs of the customers. The central pillars of the Charter are customer centricity, risk-based pricing, transparency, and ethical culture. They reflect the vision of the Central Bank of Kenya (CBK) of a banking sector that is responsible, disciplined, and aligned to customers’ needs that “works for and with Kenyans” the regulator said.

Parliament in 2016 introduced caps on interest rates after a long-standing concern about some exploitative lenders. In the arrangement, which was later shelved for contravening open-economy principles, the maximum lending rate was set at no more than four percent above the CBK base rate; and the minimum interest rate granted on a deposit held in interest-earning accounts with commercial banks was set at least seventy percent of the same rate.

The CBK said the survey will further check the status of the consumer protection rules which require commercial banks to disclose all the necessary information to a customer who needs to open an account or take a loan with the respective bank.

“The time is now ripe for CBK to take stock of the impact and status of implementation of the initiatives taken over the years to strengthen the consumer protection framework in the banking sector. It is equally imperative that CBK becomes apprised of the emerging market conduct issues which are negatively impacting on customer satisfaction” CBK said.

Additionally, the checks will cover the response by banks to a raft of emergency measures initiated by the State to cushion Kenyans from the economic shocks of the Covid-19 pandemic.

The measures included; lowering of the lowered the central bank rate from 8.25percent to 7.25 percent to signal to the banking sector to lower lending rates to support the provision of affordable credit to Kenyans distressed by Covid-19. The monetary policy committee of the CBK also reduced the ash reserve ratio from 5.25 percent to 4.25 percent. This released Sh.35.2 billion to banks to directly support borrowers distressed because of Covid-19.

The State also implemented a waiver on mobile cash charges to encourage the use of digital cash to limit person-to-person contact to curb the spread of the virus. This included a waiver of charges on mobile money transactions below Sh1,000 between money wallets and bank accounts and an increase of mobile money limits from Sh150,000 to Sh300,000.

The State further provided for a restructuring of loans to ease pressure on households. Borrowers were provided with various restructuring options that saw loans valued at Sh.1.8 trillion restructured as of June 2021, accounting for 57.1 percent of the banking sector gross loans at Sh.3.1 trillion.