The Kenya Bankers Association (KBA) has announced a series of measures aimed at lowering loan interest rates to make credit more affordable for individuals and businesses. This move aligns with the Central Bank of Kenya’s (CBK) recent monetary policy actions to cut the Central Bank Rate (CBR), setting the stage for a transformative shift in lending dynamics.
As the CBK reduced the CBR, financial institutions have begun adjusting their lending and deposit rates to reflect the new monetary conditions. Individual banks are set to implement progressive interest rate cuts starting in December 2024. This approach aims to balance the cost of deposits, many of which were locked at higher rates during periods of elevated interest with the evolving credit pricing framework.
In the statement, John Gachora, Chairman of the Kenya Bankers Association and Group Managing Director of NCBA, reaffirmed the banking sector’s dedication to creating a lending environment that is both accessible and affordable. He highlighted that supporting households, businesses, and the broader economy remains a central priority for the industry.
Kenya’s banking industry has transitioned to a risk-based credit pricing system, requiring banks to assess borrowers’ risk profiles. Loan pricing now depends on individual banks’ base rates, which consider the CBR and government borrowing costs, and a customer’s risk premium. This dynamic reflects market realities such as non-performing loans and economic constraints affecting borrowers’ repayment capacity.
Gachora acknowledged the financial strains faced by borrowers due to high living costs, delayed payments to businesses, and subdued economic activity. “We acknowledge that many borrowers continue to face financial strains 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,” he added.
The KBA has emphasized the need for collaboration with the government and other stakeholders to tackle systemic issues hindering credit accessibility. Key focus areas include revising risk-based pricing models, resolving delayed payments to businesses, and addressing the backlog in litigation cases that impede financial transactions.
“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,” Gachora noted. By doing so, banks aim to make borrowing more sustainable and accessible for all economic actors.
Lower interest rates are expected to stimulate economic activity by reducing the cost of credit for businesses and individuals. This could drive consumer spending, enhance business operations, and ultimately contribute to the country’s economic growth. However, banks must carefully navigate the balance between lowering interest rates and maintaining financial stability amid existing risks.
The banking industry’s commitment to affordability aligns with its role in driving economic resilience and growth. As interest rates decline, businesses, households, and individuals stand to benefit from increased access to capital, which could spur innovation, entrepreneurship, and job creation.
Kenyan banks’ efforts to lower loan interest rates come at a pivotal time when many borrowers seek relief from high borrowing costs. By optimizing credit pricing, the sector aims to establish a more supportive financial ecosystem, fostering economic growth and development. As these measures take effect, loan interest rates in Kenya will remain a critical topic for borrowers and policymakers alike.
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