The Kenya Bankers Association (KBA) recognizes the challenges individuals and businesses are currently going through, arising from the prevailing high cost of loans. Aware of the role that the Central Bank of Kenya (CBK) plays in guiding the market on credit pricing, the commercial banks within the country are now committed to bolstering economic growth by considering reduced lending rates to customers.
Considering that the recent successive cuts in the Central Bank Rate have implications on both deposit and lending rates in the market, banks are stepping up on lowering interest rates in order to make
borrowing even more affordable.
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Individual banks are issuing the requisite notices to customers indicating reductions in loan rates from December 2024 and these reductions will continue progressively, in line with the evolution of monetary policy and credit risk factors.
“As the business of banking involves mobilizing deposits and extending loans from the pool of deposits, we will continue to progressively reduce the loan interest rates balancing against the prolonged high cost of customers’ deposits that were locked-in during a period of higher interest rates before the Central Bank of Kenya initiated interest rate cuts,” read part of the press statement issued by John Gachora,
chairman, Kenya Bankers Association &
Group Managing Director, NCBA.
As the banking sector transitioned to risk-based credit pricing environment, each bank will have to exercise its mandate to assesses its customers risk profiles and price their credit accordingly, based on the individual bank’s approved base rate and valuation of the risk premium.
While the base rates primarily reflect the Central Bank Rate and the cost of borrowing by the Government, the customers’ risk premiums mirror the market conditions such as the level of non-performing loans and any challenges that customers face that may constrain their ability to service loans.
This is det to impose financial strains to many borrowers, driven by increased cost of living and of doing business; the protracted challenge of delayed payments to businesses; and generally low business activity due to reduced consumer demand arising from reduced disposable incomes. These challenges elevate consumer
risks and constrain lending at lower rates.
To unlock access to affordable credit, KBA is working closely with the Government and other stakeholders to address the broader issues that impede credit growth, including review of the risk-based pricing models, resolution of delayed payments to businesses and unlocking litigation backlog.
“As the banking industry, anchored on our determination to spur economic growth and development, we remain committed to supporting our customers and continue to explore ways to create a more accessible, affordable, sustainable and supportive lending environment for customers. We aim to ensure that borrowing channels provided by banks, effectively support individuals, households, and businesses to
thrive for the good of the economy,” the statement continued.