LENDING

CBK assures borrowers of ethical lending by banks

Banks will not return to the “wild west banditry” mode of operation witnessed before the cap law in 2016.

In Summary
  • CBK banks to look at both positive and negative information from Credit Reference Bureaus (CRBs) while computing interests rates for their customers
  • In February, CBK issued the Kenya Banking Sector Charter which represents a commitment from lenders to observe a responsible and disciplined banking
CBK governor Patrick Njoroge
CBK governor Patrick Njoroge
Image: ENOS TECHE

Central Bank of Kenya wants lenders to price their loans more responsibly and transparently, saying they will closely monitor to ensure sanity in the sector.

Speaking at the post Monetary Policy Committee media briefing, the first after the interest cap law on commercial loans was scrapped early this month, governor Patrick Njoroge promised a no return to the “Wild West banditry”witnessed in the banking sector before the rate cap law in 2016.

''Central Bank of Kenya has set the pace by defining a clear vision of a banking sector that is responsible, disciplined and aligned to customers' needs. Four pillars underpin this vision: risk based credit pricing, transparency, customer centricity and ethical culture,'' Njoroge said.

 
 
 

He asked banks to factor in both positive and negative information from Credit Reference Bureaus (CRBs) while computing interests rates for their customers.

 Njoroge said there is need for further improvement on the Cost of Credit website launched by Kenya Bankers Association in 2017 to ensure lenders fully and widely disclose total loan pricing.

He said the regulator has compelled banks to review their business models to accept lower returns that take into account the long term needs of their customers and the economy.

''Customers have perceived the high profitability of banks as exploitative given the high cost of credit, and banks should place greater emphasis on long term environmental, social and governance issues,'' Njoroge said.

In February, CBK issued the Kenya Banking Sector Charter which represents a commitment from lenders to observe a responsible and disciplined banking sector, cognisant of, and responsive to customers needs.

By May, all banks had submitted their time bound plans approved by their boards to CBK which is now monitoring implementation.

Early this month, President Uhuru Kenyatta assented to the Finance Bill, 2019 which among other things repealed the interest cap law imposed on banks in September 2016.

 
 
 

The law limited commercial banks lending rates at four per cent above the Central Bank Rate (CBR)

Yesterday, the MPC slashed the CBR rate to 8.5 per cent from nine per cent.  Loans taken under the old law will continue to be serviced at the old interest rate.

Banks have however assured lenders that they won't take advantage of the free float interest regime to overprice loans.

Early this month, Kenya Banker Association chair Joshua Oigara said banks will not hike loan prices by over 16 per cent.