Rude shock as State set to shame banks charging high interest rates

NAIROBI, KENYA: Commercial banks are headed for a rude shock in the war against high interest rates as National Treasury announces plans to name and shame expensive lenders.

Coming hot on the heels of the introduction of a uniform Kenya Banks' Reference Rate (KBRR) upon which banks should price their flexible lending rates, Cabinet Secretary Henry Rotich yesterday told The Standard that expensive lenders would now be exposed to the public.

The move is part of the Government's efforts to promote full disclosure of bank charges to facilitate informed banking decisions by the public.

Mr Rotich said his ministry would work in collaboration with the Central Bank to rank banks according to the rates they charge on loans.

He said the ranking, which will be done on a weekly basis, will enable the public to make informed decisions on which institution is cheaper or expensive.

"We want to work with the Central Bank to publish all the 43 commercial banks to see which bank is narrower. We will be doing that every week," said Rotich.

Rotich was optimistic that with all the measures the Government is taking including keeping out of the domestic market, interest rates would soon come down to spur private sector investment.

He pointed out that interest rates on Government securities have already started heading south following the Government's decision to reduce borrowing through Treasury Bills and Bonds.

He said the Government's plans to access international capital market would reduce its orrowing from the local markets, adding that this financial year the National Treasury would review downwards its domestic borrowing plans.

He said a decline in domestic interest rates would boost investments, economic growth and provide employment opportunities to the youth.

The introduction of the KBRR means that all new flexible loans issued after July 1,2014 would be priced using the new transparent pricing framework.

The banks will, however, have a transition period of one year to recalculate their existing loans in line with the new framework and inform borrowers. The framework will also be extended to other regulated lenders including microfinance banks.

Central Bank's Monetary Policy Committee (MPC) retained its benchmark-lending rate to commercial banks, dubbed the Central Bank Rate (CBR), at 8.50 per cent and set the KBRR at 9.13 per cent. This level of the KBRR remains effective from July 8, 2014 until January 2015.

Attempts by CBK to use CBR to control interest rates have not been successful as the instrument has always been ignored by banks.