Kenya Lenders Agree to cut Loan Rates in Line with New Banking law awaiting Presidential Assent

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Kenyan lenders promised on Wednesday to cut loan rates by 100 basis points immediately, part of measures to lower borrowing costs and see off the threat of a legislative cap on rates.

Parliament passed changes to the banking law two weeks ago to cap commercial interest rates at 400 basis points above the central bank’s policy rate, now 10.5 percent. The changes are awaiting presidential assent.

The central bank, which is opposed to capping rates saying it could cause banks to restrict lending, asked banks to cut rates urgently last week to win back customer’s trust.

“We are committed to help in bringing down the cost of borrowing and enhancing access to credit at affordable rates, without having to resort to legislation,” Kenya Bankers Association (KBA) Chairman Lamin Manjang told a news conference.

Businesses often complain that high commercial lending rates, which can reach 18 percent or more, hobble corporate investment. Individuals say the high rates put home and other loans out of reach of many.

KBA presented a memorandum of understanding to the central bank governor with seven proposals aimed at lowering rates, including setting aside funds to lend to women and youth-owned businesses at lower rates, and encouraging greater use of credit scores from Credit Reference Bureaus to calculate loan pricing.

Information from Credit Reference Bureaus, introduced in 2010, is mainly used by banks to determine if a borrower qualifies for a loan rather than to set rates based on scores for individual clients.

The average lending rate was 18.2 percent last month, compared with 15.8 percent in July last year, the central bank said. The central bank cut its policy rate to 10.5 percent in May, having left it at 11.5 percent since July 2015.

Governor Patrick Njoroge said the written commitment by KBA was a positive step. “They have expressed a willingness to address the issues credibly and expeditiously,” he told the news conference. “The direction is right.”

Kenyan banks have reported rising profits in the last decade, attracting foreign investors. But investors have recently been unnerved by the closure of three medium and small-sized banks in the past year, as well as a rise in bad loans.

Source: Reuters