KCB takes lead, lowers lending rates

September 10, 2012
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KCB is the first bank to lower the rates/FILE

, NAIROBI, Kenya, Sep 10 – Kenya Commercial Bank (KCB) became the first institution on Monday to lower its lending rates following last week’s reduction of the Central Bank’s benchmark tariff.

KCB announced that its base lending rate would reduce from 22 percent to 19 percent from October 1, while its mortgage base rate would drop by a percentage point to 18 percent.

The regional bank which is Kenya’s largest in terms of asset size and profitability said that the downward revision of its base lending and mortgage rates reflects the improvement in the overall cost of credit and the easing of inflationary pressures.

“We exist to support and grow Kenyan enterprises and households through the extension of affordable credit. The cost of credit is improving and monetary policy indicators all point towards a stable economic environment. We view these developments as encouraging economic indicators which we firmly believe should translate into benefits for our clients,” said Martin Oduor-Otieno, KCB Group CEO.

Clients under the bank’s Mortgage Advantage scheme will enjoy a rate reduction of 100 basis points to 16.5 percent.

The Central Bank of Kenya last week reduced its Central Bank Rate from 16.5 percent to 13 percent citing a tamed inflation now at 6.09 percent for August, a stable exchange rate that settled between the Sh83.90 to Sh84.32 band last month and fairly stable short term interest rates as major contributing factors to the rate reduction.

“It is a competitive strategy to reduce the lending rates, even before your cost of deposits goes down. You want to be the first one to move with the aim of increasing the market share. So you move fast to drop the rate, without fear of sacrificing on the margins, because you know that the costs will eventually go down,” said Olaka.

Earlier on Monday, the Kenya Bankers Association CEO Habil Olaka had said Kenyans should expect the local banks to start bringing down the lending rates from next week.

Speaking to Capital FM Business Olaka said most the banks are ready to bring down the rates, not only due to the continued favourable business environment, but use it as a competitive tool to attract customers.

“It is a competitive strategy to reduce the lending rates, even before your cost of deposits goes down. You want to be the first one to move with the aim of increasing the market share. So you move fast to drop the rate, without fear of sacrificing on the margins, because you know that the costs will eventually go down,” said Olaka.

Olaka however said some of the borrowers will benefit with the continued reduction of the lending rates while others will not, depending on the type of loan product they took from their respective banks.

For instance, he explained, a fixed-rate loan insures a borrower from rate fluctuations, meaning the interest rate will remain the same despite variation in the market. A floating rate loan, on the other hand, means that it keeps fluctuating in line with prevailing market conditions.

He urged the banks to educate their customers before selling them any product adding that most of the customers did not initially know that the increase in the interest rates would affect them.

Olaka said the association is now working on measures that will ensure that customers can fully enjoy the Credit Reference Bureau (CRB) information by using it to negotiate while taking loans.

“If for example as a borrower, the information at the bureau shows that you have no record of defaulting, you can negotiate with the bank and borrow at lower rate or even get better terms,” Olaka said.

CRB which was launched in 2010 by CBK was to enable banks share information about borrowers for business decision making. The bureau also keeps a credit history record of the borrower and can even assign a score related to the credit history.

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