Central Bank of Kenya: Banks should lower interest rates

Central Bank of Kenya(CBK) Governor Patrick Njoroge responds to questions when he appeared before the Senate Assembly Finance Committee at County Hall, Nairobi on Tuesday 10/11/15 on the Shillings depression.PHOTO:BONIFACE OKENDO

The Central Bank of Kenya (CBK) now wants commercial banks to lower their lending rates to reflect the market conditions and save borrowers from the pain of expensive loan repayments.

CBK Governor Patrick Njoroge said he expects banks to inform borrowers in a matter of weeks of a drop on rates in the same way they have communicated the increment over the past three months.

"...they understand the dynamics and we expect them to look at their own lending rates, since other key rates have come down. We are not talking months, we are talking weeks here," Mr Njoroge said.

In the past few weeks, borrowers have been slapped with a sharp rise in interest rates with some inching towards 30 per cent, thanks to the Government's borrowing spree.

Yesterday, when he appeared before the Senate Finance Committee, he said the spike in lending rates was only a temporary measure taken to help stabilise the shilling, which was no longer a primary objective.

"What we wanted was a soft landing in interest rates," said the governor in explaining the justification for the short-term interventions of raising the cost of credit.

A decline in lending rates would be a major reprieve for wananchi. Higher rates have translated to a sharp rise in monthly loan repayments, with a devastating impact on individual and household budgets.

Senators raised concerns of possible massive defaults arising from the inability of borrowers to service the loans. An even bigger fear was that banks could move to attach assets used as security for loans, including title deeds and car log books.

disclose costs

Kajiado Senator Peter Mositet had sought CBK's assurance on the safety of borrowers' property used to secure financing from banks. "We have concerns that banks could end up with assets that were used as security because it has become too expensive to repay loans," the senator said in the committee meeting called to discuss the interest rates.

Njoroge conceded that CBK did not have the power to determine how much banks charged on their credit facilities as it was a liberal market, but had introduced instruments such as the Kenya Bankers Reference Rate (KBRR) to enhance  transparency in the pricing of loans.

Through KBRR, lenders are required to disclose the exact cost on their loans, including the processing fees and insurance costs. Before that measure, banks were accused of misrepresenting their lending rates.