In the second quarter of the year, more than half of commercial banks raised their lending rates to individuals and businesses, indicating an early impact of the Central Bank of Kenya’s(CBK) accelerated approvals of risk-based lending plans.
According to the most recent bank loan and overdraft rate data published by the regulator, some lenders charged as much as 16.4 % for business loans in June, and 16.8 % for overdrafts, representing a 4.8 percentage point increase from March rates.
Eco bank Kenya increased its overdraft facility for businesses to 16.8 %, up from 12 % three months earlier, while its rate for business loans with terms shorter than five years increased from 12.5 % to 16.4 %.
Middle East Bank charges 16.1 % for personal loans with terms longer than five years, up from 8.1% in March, while Kingdom Bank charges 9.3 % for loans with terms shorter than five years.
Personal and business loan rates have risen by up to 2.4 percentage points to 14% for the majority of the 28 lenders who raised their rates.
The Central bank of Kenya(CBK) reported last month that more than half of commercial banks had their risk-based lending plans approved or signed off, allowing them to consider a borrower’s creditworthiness when determining the interest rate to charge on their loan.
The prolonged approvals wait for most banks, which according to the CBK was partly due to some submitting unsatisfactory plans, had resulted in most of them lending at a maximum of 13% even after the loan rate cap was lifted in November 2019.
At this rate, it made more sense for banks to lend risk-free to the government at rates ranging from 10 to 13.5 %, which meant that lending to the private sector has remained below the 12 to 15 % considered ideal to sustain healthy economic growth.
By allowing banks to charge a premium for lending to riskier customers, the expectation is that banks will open their wallets to small businesses and individuals who have previously struggled to obtain formal credit.
In addition, with the increase in risk pricing model approvals, lenders have expressed concern that they still lack some supporting data necessary to efficiently estimate a client’s risk profile due to the total ban on credit reference bureaus'(CRB) negative listing of borrowers with loans below Sh5 million.