Central Bank Publishes Overall Weighted Lending Rates for Kenyan Banks

The Central Bank of Kenya has set the credit pricing by the banks of Kenya publishing average lending rates for all commercial banks in Kenya.

The decision by the Central Bank of Kenya comes as allegations emerged early last year of lack of transparency in the banking system where lenders exposed borrowers to high lending interest rates with no proper regulation for them.

In order to promote transparency in the pricing of credit by commercial banks, the Central Bank of Kenya has decided to publish the average lending rates for various loan products by banks as well as the overall average weighted lending rates by the commercial banks.

These are some of the terms that have been used in the publishing of the new lending rates for commercial banks;

• Corporate Lending- this refers to loans that are advanced by commercial banks to generally larger companies.
• Business Lending- this refers to loans that are advanced by commercial banks to customers especially for supporting business endeavors.
• Personal Lending- this refers to consumer loans granted by commercial banks to individuals for personal or household use.

Generally, loans advanced by commercial banks in each business segment are grouped into three maturity profiles as shown below;

• Overdrafts- these are loans whose maturity is less than one year or overdrawn balances in customers’ current accounts.
• Loans whose maturity is between one to five years.
• Loans whose maturity is over five years.

The published lending rates for ach commercial bank are weighted average lending rate per loan category e.g corporate, business as well as personal, and maturity, that is to say overdraft, one to five years and over five years.

The weighting of the rates is based on the loan volume for each borrower under each loan category as well as maturity. The overall rate for each loan category and maturity is the sum, of the weighted rates across all borrowers.

The overall average weighted lending rate for each commercial bank is the weighted average rate across all loan categories that is corporate, business and personal, and the maturities, that is overdraft, one to five years and over five years and the weighting is based on each volume for each loan category or maturity.

The published interest rates by the Central Bank of Kenya are the average weighted lending rates for each type of loan product and the overall average weighted lending rates for each bank as at the end of a specified period. As a result, the actual rates charged by banks may be higher or lower than the published average rates. The actual rates are based on negotiations between the bank and the borrowing customer.

The following table shows the overall weighted lending rates in percentage (%) for 22 banks. All the commercial banks have been weighted but we just selected 22 as a sample.

Article by Juma Fred.