Central Bank of Kenya governor Kamau Thugge during an interview in his office /VICTOR IMBOTO
Central Bank has called on commercial lenders to pass the benefits of continued monetary policy interventions to consumers, as it moves to make yet another cut on its benchmark rates.
This, even as commercial banks see the government’s push for an aggressive rate cut by the lenders as a political gimmick, when itself is still borrowing at high rates in the market.
The Apex bank’s Monetary Policy Committee (MPC) which met on Thursday announced a third consecutive reduction on the Central Bank Rate to 11.25 per cent, from the initial 12 per cent and 12.75 per cent in October and August, respectively.
This is pegged on stable inflation, stability of the shilling and improved global outlook for growth, with lower rates expected to increase lending to the private sector and catalyze economic growth.
While some banks have in recent months reduced interest rates on loans, there has been resistance by some lenders in the market with some banks still lending at as high as 21 per cent, amid risk profiling in the market.
DTB and Cooperative Bank were the first tier 1 lenders to follow CBK’s order to offer cheaper loans with the two remaining with the cheapest loans among major commercial banks, with overall interest rates of 12.44 per cent and 14.88 per cent as of last month, respectively.
Premier Bank however had the cheapest loans with interests of nine per cent, followed by Access Bank ( 11.42%), and Consolidated Bank ( 1 2.44%), while SMEs focused Kingdom Bank had interest rates of 13.99 per cent.
Listed lenders KCB, I&M and Absa had higher interest rates of 16.02 per cent, 18.24 per cent and 20.02 per cent, respectively.
Mortgage-focused lender-HFC’s rates stood 20.50 while National Bank was offering loans at an overall rate of 16.51 per cent.NCBA in October announced the lowering of lending rates on new shilling-denominated loans to 16.91 percent from 17.5 per cent.
Last month, Equity Bank announced a reduction in interest rates on all new and existing Kenya Shilling-denominated credit facilities, giving borrowers the much-needed relief.
“The reduction in our Equity Bank Reference Rate from 17.83 per cent to 17.39 per cent is in response to the MPC’s decision, which aims to maintain economic stability amid improving inflation trends and favorable economic indicators,” Group CEO James Mwangi said.
Speaking during the post-MPC briefing on Friday, CBK governor Kamau Thugge urged banks to further reduce their lending rates in line with the Thursday reduction on the Central Bank Rates, noting lenders have been slow on passing benefits yet quick to increase their rates whenever the Central Bank Rates go up.
The Committee also observed that short-term rates on government securities had equally declined sharply in line with the CBR, but banks had not responded by lowering their rates proportionately.
“CBK’s request for banks to lower rates… I don’t think that is political, it is just indicating that look, when central bank raised the policy rate, the banks were very quick to raise their lending rates, all we are asking is for the banks to be fair and to act in the same way that they were quick to raise their lending rates when policy rate was increasing. They should equally reduce as soon as possible,” Thugge said.
According to Thugge, it is in the interest of banks to lower their lending rates noting that it will stimulate economic activities hence a win-win for everybody, with banks being able to make more profits while the economy benefits from more credit.
The call by CBK comes as economic growth slowed in the first half of 2024, with real GDP growth averaging 4.8 per cent compared to 5.5 per cent in the first half of 2023.
Commercial bank lending to the
private sector remained broadly unchanged in October 2024 compared
to the previous year.
