, NAIROBI, Kenya, Mar 5 – The Central Bank Rate (CBR) is not the sole determinant of lending rates, explaining why commercial banks’ rates may remain high despite a declining CBR.
This is according to I&M Bank CEO, Arun Mathur, who insists that factors like the cost of funds, operating cost structure and credit risk profile of loan applications continue to play a key role in determining whether interest rates to borrowers will go up or decline.
Mathur was speaking on Wednesday during an engagement with the members of the public via a social media platform by the Kenya Bankers Association (KBA), dubbed ‘My Chat with a Bank CEO’.
A majority of chat participants wanted to know why banks continue to charge high interest rates despite drops in the CBR, which is the rate at which Central Bank of Kenya (CBK) lends to commercial banks.
The chat came just a day after the CBK retained its rate at 8.5 for the sixth time in a row.
In the past, high cost of loans has made potential borrowers shy away from the credit market but Mathur says the demand for credit generally increased last year, according to the latest CBK’s Credit Survey.
The gross loans expanded from Sh1.36 trillion in December 2012 to Sh1.60trillion in December 2013.
“As a result of the improving market conditions, demand and supply of credit is expected to increase across the economy, driven by a rise in trade and investment opportunities in counties, a pick-up in economic activity, declining lending rates, higher demand for commercial vehicles, and demand from expansion activities by firms,” Mathur remains optimistic.
KBA created ‘My Chat with a Bank CEO’ in 2012 in conjunction with the association’s education initiatives targeting the banking public.
The quarterly events feature different bank CEOs who host hour-long live web chat sessions covering wide-ranging topics, including banks and the capital markets, financial inclusion, Islamic banking, mortgages and real estate investments, savings and Investments and SME opportunities.
So far, 18 CEOs have hosted the chat events.