5.5 C
New York
Monday, January 30, 2023

Buy now

Banks raise the cost of loans by the biggest margin in more than seven years

Banks raise the cost of loans by the biggest margin in more than seven years to reflect CBK jumbo rate hike.

After the Central Bank of Kenya (CBK) hiked its benchmark interest rate by the largest margin in more than seven years, leading commercial banks began raising lending rates by up to 1.1 percentage points, paving the way for pricey loans for households and businesses in a rebounding economy.

Lenders like NCBA Group, Standard Chartered, Housing Finance, and Stanbic Bank have informed customers that the base rate on their loans will increase starting this month.

Lenders are responding to the CBK’s decision on September 29 to anchor inflation expectations by increasing the benchmark interest rate by 75 basis points to 8.25 percent.

It’s the first policy meeting of the central bank since newly elected President William Ruto assumed office. 

It is also the second hike of the year and the sharpest since July 2015.

According to regulatory announcements, Stanbic and Standard Chartered hiked their base interest rates by 0.75 percentage points, while NCBA boosted its by 1.1 percentage points as of November 11.

To calculate how much to charge a specific customer, banks add a margin and a risk premium to a base rate, which is often the cost of funds.

They are currently evaluating base rates, and many have requested that the CBK increase the risk premium, which might signal the end of the era of low-interest rates.

Inflation in Kenya hits record high of 9.2pc in September, KNBS report

The costly credit emerges in a period when the economy is witnessing increased demand for loans amid the recovery from Covid-19 economic hardships, further putting pressure on lending rates.

The higher cost of loans, however, risks locking out businesses from accessing the credit they need for expansion and in turn, limits their ability to create more jobs.

The CBK’s Monetary Policy Committee (MPC) increased the benchmark rate saying the rising inflation and global risks and their impact on the domestic economy called for tightening of the monetary policy.

This matched the US Federal Reserve hike of September as central banks struggled to tame inflation.

Kenya’s inflation — a measure of annual changes in the cost of living— hit 9.2 percent in September from 8.5 percent in August, remaining above the upper limit target of 7.5 percent since June.

Also read,

Ruto back on his pre-August campaigning style as he faults Raila, Uhuru for high food prices

CBK dismisses government remarks that the country is in shortage of Forex Exchange Reserves

Ruto restructuring financial institutions to offer low-cost loans to “hustlers”

Follow us



Stay Connected


Latest Articles