, NAIROBI, Kenya, Sept 14 – The Commercial Bank of Africa (CBA) has readjusted its interest rates from 12.9 per cent to 14.5 per cent following clarification from the Central Bank of Kenya that the CBR should be the base rate banks use in adherence to the new law.
The Bank says following the clarification the maximum Interest Rate of 14.5 per cent will apply to existing as well as new credit facilities as of Wednesday.
CBA had adjusted its interest rates on new and existing loans to a maximum of 12.9 per cent based on the Kenya Bank Reference Rate (KBRR).
Other banks that had lowered their rates have used the Central Bank Rate (CBR) that is currently at 10.5 per cent as their benchmark.
Kenya Bankers Association has already declared that all the banks will comply with the new law both on new and existing loans at 14.5 percent, based on the CBR given the four per cent over and above cap stipulated in the new law.
Analysts have said the move could indefinitely hurt the Kenyan economy.
According to ICEA Lion Asset Management for the past 20 years, Kenyan banks have been enjoying interest rate spreads of about 11.4 per cent on average, way above the world average of 6.6 per cent.
“The Central Bank of Kenya Governor Patrick Njoroge is on record acknowledging that this is too high but he did not advocate for an interest rate peg as it will bring about rigidity in the financial system and may introduce a lot of shadow banking and shylocks as people who can’t access credit from the banks due to their low credit quality are priced out of the market,” the firm said in their latest review.
He says by ‘squeezing’ banks returns through interest rate caps; there is a risk that the government will slow overall GDP growth by constraining lending growth.
“The move runs against the fundamentals of Kenya’s growth model: Kenya has been able to maintain such high rates of real GDP growth which are now almost twice the average in Sub-Saharan Africa precisely because it relies on investment as opposed to consumption or exports,” he said.
Meanwhile, activist Okiya Omtatah has moved to the High Court in a bid to have all banks revise their interest rates based on the KBRR.