By Joy Kyalo
Banks have cut the average lending rates in line with reduction of the Central Bank Rate (CBR) which has been lowered to seven percent.
CBK had asked banks to submit new loan pricing formulas that would be the basis of setting interest rates on new credit in an environment where the government was not controlling loan costs.
The inability to price risk in lending is shutting out many prospective borrowers as banks seek to reduce their exposure from already large defaults brought by the Covid-19 pandemic.
Equity Group CEO James Mwangi says the bank has presented the model twice to the CBK for a discussion.
“We decided that with or without the approval, we will not change the pricing. The highest interest rate at the moment is 13 percent,” said Mr Mwangi.
Now, banks are accusing the CBK of controlling lending rates after blocking their proposal to raise the cost of loans on November 7, 2019.
Multiple bank have said that the CBK has gone silent and failed to approve their submissions, forcing them to continue operating as if they are still under lending rate controls to avoid falling in trouble with them.
Banks say that the delayed shift to risk-based lending has forced many of them to deepen investment in government securities and restrict lending to high quality customers with lower risk of default.
This emerged in a period when supply of loans to the private sector grew by 7.3 percent in the years to September, the slowest since Kenya announced its first case of Covid-19 in March 12 and below the ideal rate of 12-15 percent needed to support economic growth.
The regulatory gridlock and a lower CBR is partly the reason average lending rates dropped to 11.75 percent in September – a record low that was last witnessed in the early 1980s.
