Central Bank turns spotlight on borrowers

By John Oyuke

The Central Bank of Kenya (CBK) is urging entrepreneurs to take advantage of declining interest rates to borrow and grow their businesses.

The bank’s governor, Prof Njuguna Ndung’u, who has been pushing banks to cut lending rates, advises investors to not only borrow but also negotiate for low rates.

"The private sector should negotiate for cheap credit for their investment," he said.

According to CBK’s latest Monthly Economic Review, commercial banks’ average lending rates declined to 14.8 per cent in March from 14.98 per cent.

Barclays Bank was the first to cut its rate from 15.75 per cent to 13.75 per cent on May 1, adding impetus to pressure for lower pricing of bank loans and intensifying competition for the high-value corporate segment of the debt market.

Co-operative Bank soon followed suit slashing its base lending rate to 14 per cent from May 1. Then came Citibank, reducing the base lending rate by 4.75 percentage points to 10 per cent.

Kenya Commercial Bank (KCB) joined the race moving the lending rate from 15.75 per cent to 13.75 per cent effective from June 1 before NIC Bank followed with 14.5 per cent.

Co-operative Bank Group Managing Director Gideon Muriuki said the reduction was in reaction to efforts by CBK’s Monetary Policy Committee to bring down the cost of lending.

"The reduction will stimulate the demand for credit," Mr Muriuki said.

Kenya Commercial Bank Chief Executive Martin Oduor-Otieno said the move by the bank was motivated by a need to boost borrowing and catalyse economic activity.

"As the region’s largest commercial bank, we have the unique capability to spur economic growth in various markets through affordable credit and this reduction will support our customers’ efforts to grow their businesses," he said.

Ndung’u expressed confidence that more banks would lower interest rates to fuel economic growth.

Stimulate demand

CBK, through its Monetary Policy Committee, has for many months pushed for the reduction of interest rates to stimulate credit demand and spur economic growth. Lack of access to affordable credit is recognised as one of the challenges facing the growth of enterprises.

Speaking early this month, Ndung’u decried the fact that despite the impressive performance by commercial banks, customers still have to contend with high borrowing costs.

Ndung’u reminded banks that according to Vision 2030, they are expected to "create a vibrant and globally competitive financial sector, driving high levels of savings and financing Kenya’s investment needs.’’

He urged banks to take advantage of the new provision in the Banking Act, allowing them to use third parties (agent banking) to provide some banking services on their behalf.

The agent-banking model introduced through the Finance Act 2009 was crafted to enable banks to lower their cost of offering services while at the same time increasing their earnings as more Kenyans would be able to access financial services.

Overdue response

Commercial banks have, however, been racing to lower lending rates in a move seen as an overdue response to the CBK’s effort to stimulate growth through better pricing of debt.

CBK says credit to the private sector is on the rise and expects lending rates, which have remained high, at an average of 15 per cent, to continue declining.

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