Bankers say new CBK rates to tame borrowing cost - Capital Business
Connect with us

Hi, what are you looking for?

Kenya Bankers Association CEO Habil Olaka /FILE

Kenya

Bankers say new CBK rates to tame borrowing cost

According to Kenya Bankers Association CEO Habil Olaka KBRR main aim is to bring transparency for the borrowers which will eventually have an impact in the medium term or long term/FILE

According to Kenya Bankers Association CEO Habil Olaka KBRR main aim is to bring transparency for the borrowers which will eventually have an impact in the medium term or long term/FILE

NAIROBI, Kenya, July 10 -The new set 9.13 percent Kenya Banks Reference Rate as one of the measures to bring down the cost of borrowing may not have an immediate effect as expected on the interest rates.

According to Kenya Bankers Association CEO Habil Olaka KBRR main aim is to bring transparency for the borrowers which will eventually have an impact in the medium term or long term.

He argues that this will be in terms of bringing competition in the market since it will now be easier for customers to compare the cost margins put on top of the KBRR by the banks and be able to choose a better interest rate.

“What this change will do is that now the customers have got the power to compare across the different providers and even force them to bring down the cost,” Olaka said.

Initially, each bank had its own individual base rate making it harder for customers to make proper decision on which has fairer interest rate.

He says having a standard base rate to be used for a period of six months, it also sends a positive indication of stability in the market going forward.

In the Central Bank Monetary Policy Committee statement on Monday, KBRR may be reviewed before the given period of 6 months, only if there is drastic change in the market.

“If today there is volatility in the market and Central Bank Rate moves from 8.50 to a new rate that shows the shock in the market, it will not be effective for the KBRR to be left where it is in the next 6 months,” Olaka explained.

The new banks’ base lending rate comes a few days after the introduction of the Annual Percentage Rate (APR) by the Kenya Bankers Association, which is another tool that customers will use to compare the total cost of borrowing apart from interest rates.

Under this, banks are required to provide loan applicants with a breakdown of the Total Cost of Credit in line with the Central Bank Prudential Guidelines.

Advertisement. Scroll to continue reading.

Some of the costs taken into account by the APR are the interest rate component; bank charges and fees; and third party costs, including legal fees, insurance costs, valuation fees, and government levies.

Advertisement

More on Capital Business