No respite for borrowers as more banks hike loan rates

The trend comes from the government's increase of debt security sales. [iStockphoto]

More banks have joined the race to increase the cost of loans, with interest rates expected to pass the 20 per cent mark, leaving already squeezed borrowers with a massive debt servicing burden.

NCBA Bank Kenya is the latest top-tier lender to write to its customers, explaining the change under the new terms, ushering more pain for borrowers.

“Due to the current macroeconomic environment and rising interest rates, we wish to inform you that effective November 8, 2023, NCBA Bank Kenya’s Base Lending Rates will change,” said NCBA in its notice seen by The Standard.

NCBA said its Kenya shilling base lending rate will increase from 13.0 per cent per annum to 14.50 per cent per annum, while its United States dollar base lending rate will increase from 10.50 per cent per annum to 11.0 per annum.

NCBA said the changes will not impact its fixed-rate loans but will only affect its variable-rate loans.

“The interest rate on loan facilities priced off the NCBA Bank’s base lending rate will increase by 1.5 per cent per annum for Kenya shilling-denominated loans and by 0.5 per cent per annum for USD-denominated loans,” said the lender.

NCBA joins another tier-one lender Absa Bank, which last week also hiked its rates.

“Dear [Customer name redacted), due to an increase in Treasury Bill rates, we have increased the Absa Base Rate (ABR) from 11 per cent to 12.5 per cent effective November 1, 2023,” said Absa in such notice to an affected customer.

“Your loan tenor will be amended on your loan facilities with us under ABR.”

More lenders are expected to follow suit in the coming days.

Private sector crowding

Increased borrowing by the government is considered to be a common cause of crowding out. The borrowing can force interest rates higher and dampen loan demand by those in the private sector.

Central Bank of Kenya (CBK) Governor Kamau Thugge, however, earlier said the government does not intend to make it hard for the private sector to raise money by increasing debt sales.

The increments come when the high cost of living is already squeezing Kenyans hard.

The lenders are taking a cue from the government’s increasing debt security sales amid concerns that higher interest rates on bank loans could lower consumer and business demand for fresh borrowings.

Limiting credit and fuelling higher interest rates makes it more expensive for companies and individuals to borrow.

The World Bank recently urged the government to cut reliance on domestic debt, which has the inherent risks of crowding out the private sector.

Consequently, the World Bank signalled it is imperative for countries like Kenya with huge debt profiles such as the maturing Sh296 billion Eurobond to cast their nets wider for alternative and additional sources of international financing.

The National Treasury has warned the government’s headroom for more public borrowing is narrowing.

CBK Governor Thugge said recently bad loans had increased with the ratio of gross non-performing loans (NPLs) to gross loans rising to 15.0 per cent in August 2023 compared to 14.2 per cent in August last year.

“Increases in NPLs were noted in the manufacturing, mining and quarrying, real estate, and building and construction sectors,” said the CBK. “Banks have continued to make adequate provisions for the NPLs.”

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