Cheap loans remain pipe dream as banks squeeze customers

Accessing cheap credit remains a pipe dream for most Kenyans as commercial banks charge as high as 25 per cent interest on personal loans, new data from the Central Bank of Kenya (CBK) show.

The CBK listed financial provider Trans-National Bank as the most expensive commercial bank offering personal consumer loans with a maturity of more than two years. The financial institution offers consumer loans with interest rates that are at 16.96 per cent above the Kenya Banks’ Reference Rate (KBRR), a loan-pricing formula that is based on averages of the CBK indicative rate and the 91-day Treasury bill yield over six months.

The KBRR introduced by the central bank last year is currently set at 8.54 per cent meaning that consumers seeking consumer loans with a two-year and above maturity period will pay an interest rate of 25.5 per cent on top of the amount they have been advanced.

Most expensive

In the same category, private lender Dubai Bank has been listed as offering the lowest rates in the country with a 4.57 per cent premium on top of the KBRR giving consumers personal loans of 12.91 per cent interest.

.

Keep Reading business

•  Governors reject revenue Bill, demand Sh439.5 billion allocation
•  Firm linked to fake fertiliser calls for arrest of Linturi, NCPB boss Premium
•  KPLC to pay Sh500 million for Nakumatt fire tragedy
•  Scented success: Passion for cologne birthed my venture Premium
•  Lenders raise interest on loans despite CBK holding key rate Premium

The banking regulator revealed this yesterday publishing an index of average risk premiums on loan products offered by all the 43 commercial banks and nine micro-finance banks as at March 2015.

Of the commercial banks in the tier 1 category, Barclays Bank is among the most expensive for consumers looking for personal loans with a maturity of more than two years. The bank gives personal loans at 19.86 per cent with Standard Chartered, KCB, Equity Bank, and CfC Stanbic following with 19.4 per cent, 16.71 per cent, 16.5 per cent and 16.34 per cent, respectively.

NIC Bank emerged as the cheapest provider in terms of personal residential mortgage loans giving consumers interest rates of 10.95 per cent on their mortgages with Family bank, Barclays Bank and Commercial bank of Africa rounding up the list of top four cheapest mortgage providers.

Consolidated Bank, Gulf African Bank and Prime Bank have been listed by CBK as the most expensive mortgage providers giving interest rates of 18.4 per cent, 17.71 per cent and 17.5 per cent, respectively.

The CBK introduced the KBRR in July last year in a bid to make information about personal and private sector credit and mortgage finance more transparent to Kenyan consumers. According to the CBK, the KBRR was introduced to oblige commercial banks and micro-finance institutions to disclose and explain to their customers the effective base rate and any additional premium.

Transparent

The aim of KBBR is to standardise the lending rates, which have been varying from one bank to another. Kenyan banks have been accused of charging higher interest rates in quest for super profits. However, after almost a year of enforcement, the cost of credit has remained largely unchanged and this has seen CBK come under criticism over a perceived failure to reign in exorbitant lending prices.The banking regulator had promised to released the data to allow consumers make informed decisions.

However, the Kenya Bankers Association (KBA) said the KBRR has fulfilled it’s purpose by allowing consumers to make financial decisions based on comparative data that was erstwhile unavailable. “This is what the KBRR was meant to do which is facilitate a process where commercial banks can be transparent about their credit facilities,” said KBA CEO Mr Habil Olaka.

“The onus is now on the consumer to compare the various products available and depending on their credit standing with their respective banks and their financial position they can pick the product that best suits them,” he said.