NAIROBI (Xinhua) -- The cost
of credit in Kenya remains high despite the introduction of a law to cap
commercial banks’ interest at 4 percent above the Central Bank rate.
The law came
into force in September last year and was expected to make credit affordable
especially to small businesses.
Bank Rate currently stands at 10 percent, which means interest rates in the East
African nation should not be higher than 14 percent.
latest industry data showed Monday that the financial institutions are charging
between 14 and 21 percent, with the rates being pushed up by their fees.
The result is
that Kenyans are not accessing cheaper credit as expected, even as banks tighten
their purses and channel funds to the government through Treasury bills and
secured loans, the lenders are charging between 14 percent and 21 percent,
according to the data from the Kenya Bankers Association.
like Equity Bank, Kenya Commercial Bank and Barclays Bank are the most
expensive, with their interest rates ranging from 17 percent to 21 percent.
incomparable to smaller banks which are charging at between 14 percent and 15.1
On the other
hand, mortgage rates stand at between 18.2 percent and 21 percent, with the big
banks again being the costliest.
loans, bank charges account for up to 5.5 percent of the total cost while for
mortgages, the fees comprise of 9.3 percent of the total loan.
banks in the industry, which control a substantial amount of the loan book, are
the costliest, and hence are able to sway the market, given the low customer
bargaining power,” noted Cytonn, a Nairobi-based investment firm.
observed that loans with a one-year duration, both secured and unsecured, should
attract the maximum chargeable interest of 14 percent, but banks have managed to
increase the true cost of credit with charges varying depending on the
introduction of interest caps, there has been a decline in access to credit,
with the private sector credit growth hitting an eight-year low of 2.1 percent
in May compared to 25.8 percent at its peak in June 2014, and a five-year
average of 18 percent.
has been attributed to the fact that banks are shunning high-risk customers and
investing in risk-free treasuries, which offer better returns on a risk adjusted
growth in commercial banks in Kenya has also been affected, with listed banks
recording a growth of 7.1 percent in Quarter One of 2017, compared to 16 percent
during the same period in 2016. The most affected banks in terms of loan growth
are those with a focus on the retail market, the segment that the law was meant
to protect, indicating the rate cap might not have achieved its intended
objective,” noted Cytonn.
the market, Cytonn is calling for the removal of interest caps, given that the
law has become a hindrance to credit growth, evidenced by the continued decline
of private sector credit growth.