Kibaki urges banks to cut lending rates

By James Anyanzwa

President Mwai Kibaki has directed all commercial banks to lower borrowing costs in order to enable the country achieve its long-term development aspirations.

Kibaki noted that while the Government has taken key measures towards reducing the operational costs of banks, these institutions have been reluctant to pass the benefits on to the consumers.

The president singled out risk-based supervision through Credit Reference Bureaus (CRBs), saying even though this practice has lowered credit risk in the banking industry, the banks have not yet responded appropriately.

Drop in level

Kibaki pointed out that the use of CRBs has resulted in a drop in the level of gross non-performing loans (NPLs) to gross loans by 5.1 per cent, from Sh63 billion in March 2010 to Sh59.8 billion in March this year.

Kibaki told banks that ensuring access to finance at affordable rates is not a one-way street, since they (banks) also stand to benefit a lot from an expanded and growing economy.

He was speaking during the official inauguration of the new Standard Chartered Bank Kenya (SCBK) head office in Nairobi’s Westland area on Sunday.

He urged SCBK to be at the forefront in the banking sector by taking concrete steps to ensure access to finance at affordable rates.

"Noting the achievements that you have made over the years, I have no doubt that you have the capacity to help us in addressing this challenge," said Kibaki.

Control cost

He said in addition to the provision of a stable macroeconomic environment, the Government has also taken other key measures to the control the cost of financial services and products.

These, he said, include automation of the entire clearing system to enhance efficiency in banking transactions, and development of the legal and regulatory framework that has enabled banks use technological platforms to roll out cost-effective products, like mobile phone-based financial services.

But despite all these efforts, Kibaki pointed out that interest rate spreads in Kenya is still the highest in the region, a phenomenon that has resulted in high cost of credit, and put access to finance beyond the reach of many needy Kenyans.

"As the Government seeks to create a conducive environment for the banking sector, I challenge commercial banks to reciprocate by ensuring that benefits accruing from a better banking environment and lower credit risk trickle down to the common Mwananchi. In this regard there is urgent need for commercial banks to reduce interest rates," he said.

Deposit rates

He noted that while average-lending rates stood at 13.9 per cent in March this year, deposit rates averaged a measly 3.5 per cent translating into interest rate spread of 10.4 per cent.

Kibaki said the prevailing high interest rate regime would hurt country’s deveopment, since many people are discouraged from borrowing and saving.