CBK data reveals the cheapest and most expensive banks

CBK (Central Bank of Kenya) reveals banks offering low and high interest rates in the latest regulatory disclosure.

In the latest regulatory declaration, small lenders like First Community Bank (FCB), Ecobank of Kenya, and HF Bank dominate the list of banks offering lower interest rates, placing big players like Absa and Equity Group among those with the highest rates.

According to data from the Central Bank of Kenya (CBK) on the typical lending rates offered by commercial banks, 27 of the 39 banks increased their average rates in the three months leading up to March.

According to the analysis, Credit Bank has the highest rate at 17.6 percent and FCB has the lowest rate at 9 percent. 

Sidian had the highest rate in December at 14.6%.

FCB had a uniform rate of nine percent for personal, business, and corporate loans.

Ecobank Kenya follows with an average rate of 10.7 percent while HF and Access Bank Kenya follow with 11 and 11.2 percent respectively.

Credit Bank, with an average loan rate of 17.6 percent, tops the charts with higher rates followed by Middle East Bank (16 percent) and Sidian at 14.9 percent.

Absa and the country’s most profitable lender, Equity Bank Kenya, are ranked sixth and seventh, with interest rates averaging 14.2 percent and 14.1 percent respectively.

The banks’ disclosures to the CBK do not, however, factor in costs such as negotiation fees, legal fees, and insurance, which typically increase the effective cost of servicing loans.

Banks usually post a breakdown of other fees on a website that was developed by the Kenya Bankers Association (KBA) and the CBK to enhance transparency.

Lenders that are more into personal and SME banking tend to charge more fees because the loan itself is smaller when compared with corporate loans.

Lenders with many repeat customers sometimes trim fees on subsequent loans.

At the end of March, the CBK raised its benchmark lending rate to a five-year high of 9.5 percent from 8.75 percent as a counter-inflation measure that set the stage for costlier loans.

The jumbo rate hike was aimed at easing demand for credit in the hope of taming inflation, which dropped from 9.2 percent in March to 7.9 percent in April. Inflation, however, has remained above the government’s targeted upper limit of 7.5 percent for 11 consecutive months.

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The average commercial bank lending rate breached the 13 percent mark for the first time since July 2018 in February to an average of 13.06 percent from 12.7 percent in December and the upward momentum continues.

Interest rates are tipped to reset higher this year due to the increased adoption of risk-based pricing with more than 25 commercial banks having begun reviewing the cost of loans based on borrower risk profile.

The higher cost of credit among big banks has been linked to their strong pricing power based on a wide distribution network, multiple services, and entrenched brands.

Small lenders on the other hand are forced to compete for customers by offering relatively cheaper credit. 

This is in contrast to the years before the rate cap when small banks had the highest cost of credit.

The small lenders were taking expensive wholesale deposits and adding a margin.

But the rate caps, which were in place between September 2016 and November 2019, boxed all banks to lend at a maximum rate of 14 percent for most of the period.

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