The Central Bank of Kenya is set to gauge how; banks respond to customer needs, price their loans, how transparent they are and to what extent they engage in ethical business behaviour.
The Kenya Banking Sector Charter, signed by all banks in February this year, has four pillars: – Customer-centricity, Transparency, Risk-based Credit Pricing and Ethical culture.
By the end of May 2019, all banks had submitted to CBK their time-bound plans approved by their boards, to comply with the charter.
“Accordingly, we will be contacting you to confirm a date and time for a presentation and engagement on your implementation plans towards compliance with the tenets enshrined in the Kenya Banking Sector Charter. The CEO should lead their respective teams for the engagement with CBK,” said Matu Mugo, Assistant Director, Banking Supervision Department at CBK.
In a Circular No 15, 2019 issued to all CEOs of commercial banks and mortgage finance companies, CBK warned that failure to comply with it will attract appropriate remedial action as provided for under the Banking Act.
“The purpose of this brief is to guide institutions on amendments made to the Banking Act by the Finance Act, 2019….. a confirmation that all board members and staff have received and are aware of the contents of this circular, should be made in writing by December 9th, 2019,” said Mr Mugo.
CBK said that with recent amendments to the Banking Act, Banks cannot revise interest rates upwards for loans taken while the rate cap law was in force.
It said rates on such loans will remain fixed until the loans run their full course. CBK said rates for new loans after the repeal of rate cap law will be an agreement between the bank and customer.
With the removal of a controlled interest rate regime, fears continue among users of bank credit over whether these lenders will soon revert to the old practices.
According to the CBK-issued charter, banks will be required to use risk-based credit pricing model and give loans based on a borrower’s good and adverse information at the Credit Reference Bureau (CRB).
Lenders will also be required to disclose all fees, charges and terms to enable borrowers to gauge their ability to afford a product or not.
Already, there is a Cost of Credit Website and mobile App that enables customers to window shop for personal loans or mortgages.
Banks will also be compelled to review their business models and impress on shareholders to accept lower returns that take into account the long term needs of customers.