Calculations by the Star on Kenya Bankers Association's Total Cost of Credit Calculator established that while a credit facility worth Sh1 million can cost a borrower Sh72,000 in some banks, others charge almost double the amount.
The disparity cuts across all 36 local lenders listed on the platform meant to protect borrowers from hidden bank charges and boost transparency and competition in the lending market.
While interest rates range from 11 to 14.18 per cent for a personal facility worth Sh1 million, bank charges especially by larger banks push up the total cost of credit.
ABSA leads a group of large lenders offering the most expensive loans in the market followed by Ecobank which charges up to Sh46,000 bank fees on a personal secured credit worth Sh1 million for 12 months.
Although Absa has withheld bank charges, borrowers pay 14.18 per cent interest on a personal secured credit worth Sh1 million, with the total cost of credit hitting 139,000.
Absa’s total cost of credit is broken down into interest (Sh71,807), negotiation fees (Sh33,000), legal fees (Sh25,000), credit life insurance (Sh6,600) and excise duty (Sh6,600).
Ecobank on other hand charges an interest of 13.63 per cent, a bank charge of Sh30,000, and a further Sh16,050 in external fees, pushing the total cost of credit to Sh121,000.
The same loan size on similar duration at Sidian Bank will cost Sh118,800, Family Bank (115,624), Standard Chartered Bank Kenya (Sh115,000) and Equity Bank (Sh108,057).
Equity Bank, Cooperative Bank and KCB, the top three banks in the country in terms of asset base are charging an average of Sh25,000 and Sh11,000 in external fees.
Their average total cost of credit is Sh108,000, way above three low-tier lenders that have done away with bank charges.
This, perhaps explains why the Bank of Baroda is offering the cheapest secured personal loan in the country, with the total cost of credit hitting Sh70,794.
Bank of Baroda's s total cost of credit is broken down into interest (64,194), zero negotiation, zero legal, zero insurance and excise duty (Sh6,600).
It is followed by Kingdom, Housing Finance, Credit Bank and First Community Bank which are pricing a Sh1 million personal secured loan at Sh71,807, almost all of it being interest charges.
NCBA is the only big bank ranked among the group of second-cheapest lenders, with the lender also pricing a similar-sized loan at Sh73,418.
This despite charging a total of Sh24,000 in loan processing fees. It offers the least interest rate of nine per cent in the market.
Launched in 2017, the KBA platform shows how much borrowers will pay per month as principal repayment and interest as well as the third-party costs involved.
The website, which categorises lenders into three segments conventional, microfinance banks and Islamic banks also provides the Annual Percentage Rate (APR), which refers to the effective interest rate for a whole year as opposed to just a monthly rate.
The banking lobby however advised customers to contact their respective banks for details prior to entering into any loan agreements.
It reminds lenders to update details every two weeks. Initially, it used to be every two months in line with the monetary policy meetings.
Previously, CBK has been publishing the average weighted lending rate for all banks but the data has not been as comprehensive and updated as the one expected on the cost of credit portal.
Banking expert Dan Shikanda says the platform has brought sanity to the market where borrowers could be charged loan processing fees way above the listed interest rate.
"The transparency has yielded healthy competition in the sector. A total cost of credit of Sh70,000 on a Sh1 million credit facility is good progress and a win for consumers,'' Shikanda said.
He challenged KBA to ensure lenders list all parameters in the portal as the sector moves towards risk-based pricing to avoid predatory lending.
Six banks have so far received approvals for risk-based lending but only Equity Bank has come to say it secured regulatory clearance.
Equity said it was cleared to price loans at between 13 percent and 18.5 percent.
There has been no sharp rise in interest rates despite the removal of lending rate controls, with the CBK lowering its benchmark lending rate and warning banks against arbitrary rate hikes.
However, the non-interest charges levied by most banks are raising the actual cost of funds for borrowers.
Currently, the sector is lending at an average of 12 per cent up from 11.7 per cent last year. This is after CBK recently raised the base lending rate by 50 basis points to 7.5 per cent to curb rising inflation.
