Commercial banks’ loan interest rates are yet to move lower despite two successive cuts to the benchmark interest rate by the Central Bank of Kenya (CBK) to 12 percent from 13 percent.
The average weighted lending rates on commercial bank facilities edged higher to 16.9 percent in September, from 16.78 percent in August, according to recently published CBK data.
The marginal increase in the overall weighted rate was despite October’s 0.75 percent benchmark rate cut, which followed a 0.25 percent trim in August.
Kenya Bankers Association (KBA) chairman John Gachora said banks have recently begun cutting interest rates but the relief is yet to feed into the overall weighted rates.
“The rates are coming down but it’s a 30-day notice, so even the changes made have not necessarily worked themselves into the rates yet. I think you’ll start to see that change manifesting itself from this month to December,” he said in an interview on Wednesday.
“A number of banks have already lowered their interest rates, NCBA being one of them. There is a clear understanding that where it’s possible, we need to start reducing the pain to our customers.”
Overall weighted average lending rates also rose in August to a mean 16.78 percent from 16.67 percent in July, even as the CBK started easing monetary policy.
The weighted lending rates factor all facilities in the market irrespective of date at which the loan was taken, fixed interest cost or currency denomination.
According to Mr Gachora, the overall weighted lending rate shows the cost of loans to the economy, while the lending rate is indicative of the interest rates set on a facility at present.
High interest rates on commercial bank loans alongside rising impairments have significantly cut the demand for credit from the private sector, which now sits at record lows.
The sticky interest costs have resulted in intense lobbying by the government, including President William Ruto and Treasury Cabinet Secretary John Mbadi, for commercial banks to cut borrowing costs to revive private sector demand.
The CBK called for a meeting with banks to deliberate lower interest rates, following its jumbo rate cut which it deemed as sufficient to nudge interest rates lower.
The meeting between the parties is however yet to happen but remains on the cards.
“The meeting has not happened yet but certainly we do talk about interest rates at our various engagements. The (CBK) Governor was away at IMF meetings but he is now back, and we are planning to have that meeting now,” Mr Gachora said.
Other domestic interest rates including yields on Treasury bills and interbank rates have since moved lower after CBK cuts.
Banks have been slow to announce cuts to their internal benchmark lending rates, with NCBA being the only lender to disclose a new 16.91 percent base for its shilling denominated facilities last month from 17.5 percent previously.
