Smaller lenders lead in cheap loans as costs fall marginally

Commercial banks have lowered interest rates over the last six months, albeit marginally, new data shows. 

The banks have been following the Central Bank of Kenya’s (CBK) Monetary Policy Committee’s (MPC) cue following the consistent reduction in the benchmark Central Bank Rate (CBR) and consequent threats of penalties by the regulator for failing to pass on benefits of the lower loan rates to borrowers.

="https://www.standardmedia.co.ke/business/business/article/2001511563/relief-for-borrowers-as-kcb-lowers-its-loan-rates">CBK’s monthly survey

Among the lenders that have lowered their interest on loans is Citibank NA Kenya, whose loans averaged 12.78 per cent in February this year, down from 18.47 per cent in September 2024, making it the cheapest lender during the month. State-owned lender, Consolidated Bank, retained low rates at 13.31 per cent, almost what it charged in September last year at 13.41 per cent. 

Stanbic was the third cheapest lender in February, according to CBK, advancing loans at an average of 13.68 per cent, down from 14.79 per cent in September last year. 

Kingdom Bank also significantly reduced its rates to 13.86 per cent in February from 19.36 per cent last September.

="https://www.standardmedia.co.ke/business/article/2001511115/cbk-to-penalise-banks-keeping-loan-costs-high-as-key-rate-falls">Others with relatively< lower loan rates include Guardian Bank (14.08 per cent), Paramount Bank (14.28 per cent), Standard Chartered (14.90 per cent) and UBA Kenya (14.91 per cent). It was, however, a mixed bag for tier-one banks, with some reducing their rates and others increasing them, albeit marginally.

This is despite having announced significant reductions in their base lending rates in February, which was expected to provide much-needed relief to their customers.

Equity Bank lowered its interest rate to 16.06 per cent during the month from 16.51 per cent in September last year, while Co-operative Bank reduced the cost of its loans to 16.87 per cent from 19.22 per cent.

Absa Bank Kenya, on the other hand, reduced its rate to 17.25 per cent from 17.60 per cent last September, while NCBA Bank lowered its rate marginally to 18.58 per cent from 18.59 per cent.

The average interest rate charged by KCB Group went up marginally to 16.82 per cent in February from 16.02 per cent in September last year.

On average, lenders have reduced the cost of borrowing from a high of 17.23 per cent seen in November to 16.41 per cent in February this year, according to CBK. 

="https://www.standardmedia.co.ke/business/financial-standard/article/2001511475/co-op-bank-cuts-lending-rate-as-pressure-mounts-on-rivals-to-follow?utm_cmp_rs=amp-next-page">CBK’s MPC in early< February cut the  CBR to 10.75 per cent from 11.25 per cent. 

MPC has, since August last year, sustained a reduction in CBR. The apex bank, however, noted that despite the cuts, banks remained reluctant to reduce interest rates, which was, in turn, hurting the economy. CBK threatened to penalise the banks that do not cut their lending rates.

“The committee observed that the CBR has been lowered substantially since the MPC Meeting of August 2024, yet lending rates have only declined marginally,” said MPC in a statement. 

Non-compliant banks face fines of up to Sh20 million or three times any undue benefits accrued as per the recently enacted Business Laws (Amendment) Act 2024, which amended the Banking Act, introducing stiffer penalties.