Co-operative Bank of Kenya has directed its branches not to price its credit above 14.5 percent making it the first lender to adopt the Banking (Amendment) Bill, 2015 capping bank interest rates at 4% below the Central Bank Rate.
Dr. Gideon Muriuki, Group Managing Director and CEO of the bank in a statement said, “ We advise that pending receipt of full guidelines from our regulator the Central Bank of Kenya particularly on the applicable Bare Rate, all new credit facilities shall be at a rate not exceeding 14.5 percent per annual ( being current CBK Rate of 10.5 percent per annual +4%).”
President Uhuru Kenyatta on Wednesday assented to amendments to the Banking Act, requiring that lenders peg credit costs at 400 basis points above the benchmark central bank rate. The law compels financial institutions to pay interest of a minimum of 70 percent of the so-called CBR on deposits.
“I have consulted widely and it is clear to me from those consultations that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks,” Kenyatta said in an e-mailed statement. “These frustrations are centered around the cost of credit and the applicable interest rates on their hard–earned deposits. I share these concerns.”
On Thursday, Cooperative Bank was among the tier 1 Kenyan banks whose stock shares plunged at the Nairobi Stock Exchange. The bank lost 9.81 percent at the price of 11.95 shillings per share.
In July, Central Bank of Kenya has cut the CBR by 1 percentage point to 10.5 percent for the first time since April 2013. It also lowered the Kenya Bankers’ Reference Rate, or KBRR, by 97 basis points.
High lending rates facilitated the posting of record profits for banks in the previous financial year, as CBK data showed lenders’ profit before tax grew 12.2% for FY2014.