NAIROBI, Kenya, Sep 17 – Central Bank Governor Njuguna Ndung’u on Monday challenged local banks to come up with a concrete solution on how to reduce the Interest Rates Spread.
Ndung’u said the spread is too wide compared to other countries adding that the Kenyan borrower continues to carry the heavy burden of high interest rates with less income from the savings deposit rate.
He said it is possible for banks to increase the rates on deposit for the benefit of the customers without affecting their profits, something he said the institutions have always shied away from.
“How do we help in coming up with solutions to close the wide spread. Fifteen percent on average is too huge. We have looked at comparable countries and we see that they range between four and six percent while ours is between 12 and 15 percent. It’s really not acceptable and we have to ask ourselves; what do we need to do?” Njuguna posed while opening a two-day conference in Nairobi organised by the Kenya Bankers Association (KBA) to focus on issues affecting the banking sector.
He said banks have come up with many easy banking products that have reduced the cost of customer services for many banks, something he said should then facilitate the increase in the deposit rate.
“We have allowed banks to roll out products, to integrate with the mobile phone financial services platform. In fact, some of the bankers have told us that they have reduced queues in the banking halls. And for us it is a success story because it has reduced the cost of doing business,” Njuguna said.
“But we would like to make sure once these costs are reduced… let us also see how they filter down to reduce the spread.”
Interest Rate Spread is the interest charged by banks on loans to customers, minus the interest that banks pay on savings deposits.
<blockquote><span style=”color: #800000;”><em><strong>”In this workshop we have engaged several private professionals who are here to give us some analysis on this issue. By December this year, will come up with several conclusions and recommendations to our members and all stakeholders on the way forward,” Olaka said.</strong></em></span></blockquote>
On his part, KBA CEO Habil Olaka said through research, the association is planning to come up with policies that will help deal with the issue of interest rates.
“In this workshop we have engaged several private professionals who are here to give us some analysis on this issue. By December this year, will come up with several conclusions and recommendations to our members and all stakeholders on the way forward,” Olaka said.
Other issues being discussed in the workshop include the role of agency banking, role of capital requirements on competitiveness and stability of banking sector, effects of over reliance on collateral lending, efficiency and segmentation on the interbank market in the country and the role of consumer satisfaction.
According to the 2011 CBK Bank Supervision report, the Interest Rate Spread widened to 13 percent in December 2011 from 10.3 percent by December 2010. This is after the average lending rate for the banks increased from 13 percent to 20 percent in the same period.