Costlier Loans As Banks Increase Interest Rates

Kenyan banks have started increasing interest rates following the Central Bank of Kenya’s (CBK) move to raise its benchmark lending rate, setting the stage for expensive loans for thousands of households and businesses at a time when the cost of living is on a rising spree.

NCBA Group, Standard Chartered, and Stanbic Bank are some of the lenders that have notified clients that the base rate on their loans will rise.

“Dear client, the Standard Chartered Bank internal base lending rate will be revised upwards from 8.5 percent to 9.25 percent effective November 14, 2022. This adjustment will affect your KES loan facilities held with us,” read a notice from Standard Chartered to its clients.

NCBA Bank’s base lending rate for Kenya shilling-denominated credit facilities is expected to increase from 8.9 percent to 10 percent per annum effective November 11, 2022, according to the bank’s notice. On the other hand, the lending rates for Stanbic bank are set to jump from 8.80 percent per annum to 9.55 percent per annum.

“In compliance with existing legislation on the administration of credit facilities, including the Consumer Protection Act and the Banking Act, we hereby advise you that we have revised the Stanbic Prime Rate (SPR) reference basis for calculating our lending rates from 8.80 percent per annum to 9.55 percent per annum,” Stanbic said in a notice.

CBK’s Monetary Policy Committee (MPC)- the highest decision-making organ increased its base rates from 7 percent to 8.25 percent in a move that was geared towards fighting the prevailing increase in prices of goods and services.

The regulator also named the elevated global risks and their impact on the domestic economy as some of the key drivers for the tightening of the monetary policy.

The Central Bank Rate(CBR) is the rate at which banks borrow from the CBK before on-lending to consumers. When the CBR goes up, the interest rates of loans offered by banks also increase, as banks use the base rate to calculate how much they charge a particular customer. The latest CBR revision is the highest since January 2022 and comes at a time when Kenyans are grappling with the high cost of living.

The country’s inflation hit 9.2 percent in September from 8.5 percent in August, remaining above the upper limit target of 7.5 percent since June.

The expensive loans pose a big challenge to access to credit for businesses as business owners might shy away from them, affecting businesses’ growth.