Latest CBK report reveals banks with cheapest, most expensive loans

Cooperative Bank and Diamond Trust Bank (DTB) remain the lenders with the lowest loan interest rates among Tier One banks, according to new data from the Central Bank of Kenya (CBK).

According to the ‘Commercial Banks’ Weighted Average Lending Rates’ bulletin for the month of September, there are wide differences in lending rates in the market with some lending at below 10 per cent while others charge well above 20 per cent per annum for loans.

The report indicates that Cooperative Bank and DTB have overall lending rates of 14.88 per cent and 12.44 per cent per annum, respectively.

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During the month under review, Equity Bank’s overall rate stood at 16.20 per cent, the fourth lowest among Tier One banks after KCB, which was charging 16.02 per cent.

Overall, Premier Bank and Access Bank offer the most affordable rates at nine per cent and 11.42 per cent per annum respectively.   

The most expensive lender, according to the report, is the Middle East Bank with an overall lending rate of 21.52 per cent.  

Others that charge interest rates of over 20 per cent overall are HFC (20.50 per cent), Credit Bank (2025 per cent), Commercial International Bank Kenya (20.20 per cent), I&M Bank (20.11 per cent) and ABSA Bank (20.02 per cent).

Those with the lowest rates also include Consolidated Bank of Kenya (13.41 per cent), Kingdom Bank (13.99 per cent) and Guardian Bank (14.79 per cent).

The report comes at a time when the government and the CBK have been eager to push for lower lending rates aimed at stimulating growth in private-sector credit.

On October 8, 2024, CBK cut its Central Bank Rate (CBR) to 12 per cent from 12.75 per cent. This was the second consecutive rate reduction. 

CBK Governor Kamau Thugge and President William Ruto have called on commercial banks to consider lowering their lending rates to help spark credit growth, with the governor saying he would meet bank CEOs to discuss the same.   

“I would like to strongly urge the banks to lower their lending rates as soon as possible. This will be a win-win for both consumers, investors as well as the banks as it would stimulate economic growth by boosting credit to the private sector while at the same time addressing the rising non-performing loans of banks,” said Thugge.  

“With inflation declining steadily and expected to decline and the CBK easing monetary policy there is no reason not to have lower interest rates by the commercial banks,” he added at a function attended by Ruto.  

Despite the lowering of the CBR, the major banks with the exception of a few such as Equity and NCBA, have been reluctant to pass the benefit to borrowers.  

“Following the adjustment of the Central Bank Rate (CBR) on August 6, 2024, from 13 per cent to 12.75 per cent, we wish to inform our customers and the general public that we have reduced Equity Bank's Reference Rate (EBRR) from the current 18.24 per cent to 17.83 per cent effective 9th September 2024,” Equity Bank announced in a statement last month.  

NCBA Bank also lowered its rate from 17.50 per cent to 16.91 per cent per year.  

As a result of the high interest rates charged by most banks, lending to the private sector has sharply declined, with growth falling from 3.7 per cent in July to just 1.3 per cent in August.

This contraction is largely attributed to an increase in NPLs, which rose to 16.7 per cent of gross loans in August, up from 16.3 per cent the previous month.

Historically, Kenyan banks have been quick to raise rates whenever the CBK increases the benchmark rate, often citing rising costs of funds as justification.

This pattern has raised expectations that they would be equally responsive in lowering rates following the recent cut but banks have been reluctant.

A survey by the CBK also shows Kenya's banks are tightening their grip on deposits, opting to hold onto their piles of cash rather than extend loans to small businesses.

This cautious stance is pushing many businesses to seek alternative funding sources outside traditional banking.

According to CBK, banks disbursed Sh783 billion in loans to MSMEs in 2023, marking an increase of approximately Sh75 billion compared to the previous year.

National Treasury Cabinet Secretary John Mbadi said lower interest rates would boost increased liquidity in the economy.

The recent CBK survey shows banks are adopting a conservative approach, focusing on existing relationships with larger, lower-risk clients, while small and medium enterprises find themselves increasingly sidelined.

Many former clients report not only a lack of new loans but also unexpected demands to repay existing lines of credit, leaving them to navigate a tightening credit landscape.