Equity and Barclays are among the most expensive banks in the country when it comes to loan interest despite having the lion’s share of banking business, according to latest statistics. Barclays Bank is the most expensive among large banks lending at an average 19.2 per cent followed by Equity at 19 per cent.
The data was released by the Central Bank of Kenya (CBK) only days after MPs passed a law to cap interest rates. The proposed law seeks to impose a four percentage rise limit above the benchmark Central Bank Rate (CBR). The law is now awaiting President Uhuru Kenyatta’s decision on whether or not to assent to it.
The two lender are charging above the industry average of 18.2 per cent and nearly two percentage points above their fellow large lenders – Standard Chartered, Co-operative and KCB – who average 17.3 per cent.
Equity holds more than a fifth of loan accounts in the country riding on its wide branch network in the country. The CBK has turned to disclosing of banks’ pricing in an effort to urge borrowers to shift to cheaper banks forcing down the rates. “Lack of transparency in pricing of credit by the lenders can expose borrowers to high lending interest rates,” said the CBK in a statement.
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Big banks have received the most criticism over the cost of loans with the CBK governor Patrick Njoroge accusing them of abusing their dominance. Large lenders have been under pressure to set the pace in lowering interest rates given their ability to mobilise cheap deposits and implement technological innovations that lower operational costs.
Small lender First Community Bank and mid-sized Citibank are the cheapest at an average 11.7 per cent, said the CBK. The data showed short-term individual borrowers with the National Bank of Kenya were the hardest hit paying interest of 25.2 per cent.
The Kenya Bankers Association has in the past expressed support for transparency in loan pricing stating it was a better solution to bring down interest rates than regulation. Economist have warned against capping interest rates but the burdened public is urging Mr Kenyatta to sign the Bill seeking regulation of rates to law.
Barclays Africa Group deputy CEO David Hodnett said the country had to watch out to ensure that the regulation of deposit and lending rates did not hit banks’ profitability such that the return to investors was no longer attractive.
If Mr Kenyatta immediately signs the Bill into law, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent.
MPs have grown impatient with the bankers’ dragging their feet to lower interest rates even after licensing of innovative products and passage of laws creating a more conducive environment. The CBK has allowed agency and mobile banking, which removes the burden of administrative costs such as salaries and rent while growing their businesses.
Parliament created Credit Reference Bureaus helping banks to gauge the character of a borrower so as to properly price the associated risk. The lenders have laid emphasis on using the shared information to lock out bad borrowers without offering any incentive to loyal debt payers.
Most lenders have announced staff layoff and recruitment freeze due to technological efficiencies but customers are yet to reap the benefits through lower interest rates.
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