Pressure piles on big banks to cut rates as 3 comply

A banking hall. Three banks have indicated they are cutting lending rates in line with benchmark rates, mounting pressure on their rivals as the debate to regulate loan prices rages. PHOTO/ FILE  

By BRIAN NGUGI, bnjoroge@ke.nationmedia.com

In Summary

• StanChart did not send a public notice but is understood to have sent the message to individual loan account holders.

Three banks have indicated they are cutting lending rates in line with benchmark rates, mounting pressure on their rivals as the debate to regulate loan prices rages.

Last week Commercial Bank of Africa (CBA), I&M and StanChart indicated to their customers that they were slashing the rates although it was unclear whether this would apply to all types of loans. CBA and StanChart are tier-1 (or large) banks while I&M is a tier-2 (or medium-sized lender).

The banks said they were lowering the rates in line with the recent reduction of the Kenya Banks Reference Rate (KBRR) by 0.97 percentage points to 8.90 per cent. I&M and StanChart said they had lowered the lending rate by exactly the same rate of 0.97 percentage points.

Though they did not state it, the three banks may have reacted to the CBK governor Patrick Njoroge’s appeal that they make a “downpayment” in relation to assuaging the public dissatisfaction with the prevailing high interest rates.

“We are pleased to advise you that the interest rate charged on your credit facilities with Commercial Bank of Africa Limited that are denominated in Kenya shillings and benchmarked against the KBRR will be adjusted accordingly in line with the change,” said the CBA in a note to customers.

The lender said the change in interest rate will come into effect from August 24 this year.
I&M and StanChart also said it would also respond to the cut in the KBRR as per the directives of the CBK. Earlier, the CBK had said lenders were not reacting to the KBRR.

READ: Kenyan banks react sharply to MPs bid to control interest rates

“As per the directives of CBK…the KBRR component of our interest rate will stand reduced to 8.90 per cent per annum with effect from August 25, 2016,” said I&M Bank in a public notice.

Effective guidance

StanChart did not send a public notice but is understood to have sent the message to individual loan account holders. The CBK Monetary Policy Committee (MPC) on July 25 sent mixed signals to the market by cutting the minimum lending rate for banks even though it has previously termed the benchmark as inefficient. Dr Njoroge is on record saying the regulator was devising a new tool for effective guidance of the lending market rates.

The MPC slashed one percentage point from the KBRR in a bid to put pressure on commercial banks to lower lending rates and avert an economic slowdown. It was not immediately possible to establish whether other lenders had cut the rate.

The move by the three banks is however set to put pressure on their rivals to lower lending rates. The CBK governor has encouraged banks to lower their rates. His call has come amid the raging debate on whether President Uhuru Kenyatta should reject or assent to the Bill seeking to cap interest rates and provide a floor on deposits.

READ: Luxury car sales drop sharply on high cost of loans

Parliament last week passed a Bill capping bank interest rates at four per cent above the indicative Central Bank Rate (CBR). Bankers have argued that the Bill if assented into law will hit small borrowers hardest.

If Mr Kenyatta endorses the Bill, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent. That would be significantly different from current average lending rate of 18 per cent, as per CBK data.