Regulator puts bank executives on the spot over high lending rates

Central Bank Governor Kamau Thugge during an interview at his office on April 12, 2024 /VICTOR IMBOTO

The Central Bank of Kenya has sharply criticized commercial banks over their reluctance to pass on the benefits of lower benchmark rates to borrowers, amid a widespread decline in deposit rates in their favor.

This, even if it is to respond to concerns about the solidity of the country’s banking sector. CBK Governor Kamau Thugge has since summoned commercial bank CEOs to address “the sector’s teething problems, according to insiders, with the government keen to increase lending to both households and businesses in what , according to her, will stimulate economic activities and growth.

Last Wednesday, the CBK said the banking sector remained stable and resilient, rejecting what it called “misinformation” that could have triggered panic withdrawals.

The CBK is, however, concerned about the inability of some banks to reduce their interest rates.

While some banks had already reduced interest rates after the Monetary Policy Committee of the Central Bank of Kenya (CBK) cut the policy rate by 0.75 percent, or 75 basis points, from 12.75 percent to 12 percent, on October 8, some banks expect to offer loans at exorbitant rates.

“I have scheduled three meeting sessions with all CEOs of commercial banks and mortgage finance companies to discuss this important issue…given the critical nature of this meeting, I would ask all CEOs to attend meeting in person,” CBK Governor Kamau Thugge said. a summons from CBK seen by the Star.

The first meeting took place yesterday and two more are planned for today and tomorrow at CBK headquarters in Nairobi.

The CBK is concerned about how quickly banks are cutting deposit rates, but how slowly they are lowering lending rates, in line with the central bank’s back-to-back base rate cuts, which fell by a peak of 13 percent in June.

Rates were reduced to 12.75 percent in August before a further reduction to 12 percent last month. At the recent launch of the Kenya Bankers Association’s Inua Biashara exhibition, discussions were held on the need to boost private sector credit growth, CBK notes.

“This is particularly important in light of falling interest rates following recent central bank rate cuts by the Monetary Policy Committee,” Thugge noted.

The decline in the CBR was accompanied by a fall in inflation which fell to 2.7 percent in October, compared to 3.6 percent a month earlier.

“The MPC noted the sharp deceleration of credit to the private sector and the slowdown in growth in the second quarter of 2024, and concluded that there is scope for further easing of the monetary policy stance to support economic activity” , Thugge had declared. during the MPC meeting.

Commercial bank lending growth to the private sector stood at 1.3 percent in August 2024, compared to 3.7 percent in July. Growth in local currency loans stood at 5.2 percent in August, while foreign currency loans, which account for about 26 percent of total loans, contracted by 10.6 percent. DTB and Cooperative Bank were the first Tier 1 lenders to follow CBK’s order to offer cheaper loans, with both remaining with the cheapest loans among major commercial banks, with rates of overall interest rates of 12.44 percent and 14.88 percent respectively last month.

Premier Bank, however, had the cheapest loans with interest at 9 percent, followed by Access Bank (11.42%), Consolidated Bank (12.44%), while Kingdom Bank, focused on SMEs, had interest rate of 13.99 percent.

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 lender HFC’s rates stood at 20.50 while National Bank offered loans at an overall rate of 16.51 per cent. The NCBA announced last month that it was lowering interest rates on new shilling-denominated loans from 17.5 percent to 16.91 percent. On Monday, Equity Bank announced a reduction in interest rates on all new and existing credit facilities denominated in Kenyan shillings, providing much-needed relief to borrowers.

“The reduction in our Equity Bank benchmark rate from 17.83 percent to 17.39 percent is a response to the MPC decision, which aims to maintain economic stability amid improving inflation trends and favorable economic indicators,” said the group’s CEO, James Mwangi.