Borrowers continue to feel the pain of lingering high lending rates despite progressive cuts by the Central Bank of Kenya (CBK).
- In August, the overall lending rate edged higher marginally by 0.1% as the effects of the first 25 basis points cut was slowly creeping through the banking sector.
- Only 8 banks out of the 38 had their overall rates reduced with 2 retaining their July rates, bringing the average to 16.78% in August compared to 16.68% in July.
- Out of the 9 listed banks, Co-operative bank and I&M Bank reduced their rates on long term business loans marginally, offering 16.85% and 18.55% respectively in August.
For long term business loans above 5 years, Diamond Trust Bank had the cheapest rates offering 12.21% in August. Contrastingly, NCBA had the highest rates on long term business loans, offering 20.82% in August.
On Wednesday, CBK Governor Kamau Thugge disclosed that he had scheduled a meeting with bank Chief executives seeking to address the unresponsiveness of banks to the recent cuts.
“We have agreed with the commercial banks that we will have a meeting to brainstorm to ensure that with the low inflation and Central Bank Rate that the banks extend lower interest rates to borrowers,” Dr Thugge said on Wednesday at the Kenya Bankers Association MSME Summit 2024.
The CBK has delivered a total 100 basis points rate cut in 2024, kickstarting the easing cycle on the back of easing inflation and a slower economy. Previous hikes saw inflation fall back to CBK’s lower bound target buoyed by easing fuel prices and stable food prices coupled with the stronger shilling.
“With inflation declining steadily and CBK easing monetary policy there is absolutely no reason not to have lower interest rates by the commercial banks,” he added.
A dovish stance by the apex bank should systematically transmit through the banking sector to lower credit costs for borrowers in turn spurring investment activity.
Credit to the private sector declined by 2.4% in August attributed to the stubborn high rates that made borrowing expensive. Similarly, the ratio of gross non-performing loans (NPLs) to gross loans edged higher to 16.7% in August 2024 compared to 16.3% in June.
