Half Of Banks Get Clearance On Risk-Based Loan Pricing

 

By Kepha Muiruri

An estimated half of 38 commercial banks in the country have received the Central Bank of Kenya (CBK) green light to roll out risk-based loan pricing.

The disclosure by the CBK and the Kenya Bankers Association (KBA) has not however specified banks to receive the clearance.

According to the banking sector lobby, the continued approval of risk-based lending models will allow banks to accommodate riskier borrowers.

“We are strongly interested in seeing the banking sector in its entirety transition to risk-based pricing. It’s only in that space that banks are able to adequately accommodate borrowers that would traditionally be deemed as risky,” noted KBA Head of Research Samuel Toriongo.

Under risk-based pricing, the borrower’s credit score becomes the graph on which the interest to be charged is plotted on.

The system rewards borrowers with disciplined loan repayment partners with increased access to credit and even predictable repayment plans.

Risk-based pricing is part of CBK’s Kenya Banking Sector which is further premised on the adoption of customer-centric business models by banks, enhanced transparency & information disclosure and the entrenching of ethical culture in banks.

The CBK continues to engage banks with pending risk-based pricing models as the reserve bank seeks to complete the transition to loan pricing.

“What we need to insist on is that the models are realistic and not just some sought of class project. We have to be specific about that,” stated CBK Governor Dr. Patrick Njoroge.