Companies
NCBA joins Equity in loan interest rate increase
Friday July 07 2023
NCBA bank along Mama Ngina street. PHOTO | EVANS HABIL | NMG
NCBA Group has become the second bank after Equity Bank to increase the cost of loans in the wake of the new benchmark-lending rate announced by the Central Bank of Kenya (CBK), setting up consumers for higher loan repayments from next week.
The lender said that loans will attract an interest rate of 13 percent effective August 7, up from the current 10.5 percent.
The CBK on June 26 raised the central bank rate (CBR) from 9.5 percent to 10.5 percent— the highest point in nearly seven years setting the stage to review the cost of their loan facilities.
Equity Bank was the first lender to adjust loan prices following CBK’s review of the benchmark-lending rate. Equity Bank notified customers that interest rates would jump to 14.69 percent effective Monday July 10th, up from 12.5 percent in January.
“In view of the recent increase in the Central Bank of Kenya rate, we wish to advise that we will adjust our Kenyan Shilling base lending rate to 13 percent per annum effective August 7,” NCBA Group said in notifications to its customers.
NCBA Group’s loan book in the Kenyan market stood at Sh249.8 billion in the financial year ended December, representing a rise of 13.5 percent from Sh220.01 billion the previous year.
This is the second time that NCBA Group has adjusted interest rates within the span of three months. The bank increased lending rates for the dollar and shilling-denominated loans to 12 percent and 10.5 percent respectively from May 29th.
Other lenders are set to follow NCBA Group and Equity in revising upwards the cost of loans, setting the stage for borrowers to pay more in the monthly interest rates.
Lenders have been shifting to a risk-based pricing regime where different consumers are charged different interest rates based on the estimated risk that the consumers will fail to pay back their loans.
The interest rate increases come as banks grapple with growing loan defaults amid economic struggles facing borrowers.
Borrowers hit banks with an additional Sh82.9 billion in loan defaults in just four months of the year, signalling the economic struggles that have seen the share of non-performing loans hit a 16-year high.
CBK data shows the non-performing loans ratio— the proportion of loans for which no interest or principal has been received for at least three months—hit 14.9 percent in May from 13.3 percent in December last year.
