CBK’s move aims to promote transparency in pricing of credit by commercial banks.
Publication of average lending rates for commercial banks is expected to enable the public make informed borrowing decisions.
The publication follows a meet between CBK Governor Patrick Njoroge and bank chief executives over the need for lower interest rates in the economy, suggesting that the margins made by commercial banks were too high.
Njoroge had termed the high bank lending rates as troubling, pointing out that it was unfortunate that large banks were hiking their rates despite the liquidity in the market.
According to ABC Capital Research Analyst Joshua Otiende, CBK seems to be forcing banks to lower interest rates, having taken all other necessary measures including retaining the Central Bank’s Rate at 11.5 percent and inflation at 7.78 percent with 91 day Treasury Bills rating at 13 percent.
“The move will trigger competition in the market and will see banks revise their interest rates as borrowers will be more inclined to borrow from banks that have lower interests,” Otiende told Capital FM Business citing that the move will see banks lower interest rates in the long run.
The same sentiments are shared by Diamond Trust Bank Chief Executive Nasim Devji who says that the interest rates regime will not change overnight.
“Different banks have different expenses hence different cost of funds so it will be hard for banks to review their interest rates in the short term, however the long term, it’s very likely interest rates may go down,” Devji added.
Moreover, Kenya Bankers Association Chief Executive Habil Olaka says the move will see customers start the conversation on interest rates.
“Customers will now be more equipped when getting the loan, the rates published are average, so it depends per individual on what interest rates one is given, there are a couple of other factors that determine how banks give interest rates,” Olaka told Capital FM Business.
Some of the factors banks look at includes capacity to pay, collateral, character of the borrower as well as the terms of agreement.
“People who have taken a loan before, and paid are usually given better rates than people who have never taken a loan,” Olaka explained.
Overall, interest rates have risen from 16.1 percent in June 2015, to 16.8 percent in September and 18.3 percent in December 2015.
In the last quarter to December 2015, KCB Bank had the lowest rates for corporate loans over five years at 12.5 percent while Ecobank had the lowest on business and personal loans at 14.9 percent and 10.8 percent respectively for loans repayable over five years.
On personal loans repayable between one to five years Habib Bank had the lowest interest at 8.4 percent as at December 2015.
The top tier banks interests for personal loans repayable between one to five years are as follows; Equity Bank at 18.1 percent, KCB at 19.5 percent, Co-operative bank at 16.6 percent, Barclays Bank of Kenya at 19.6 percent and Standard Chartered Bank at 19.5 percent.