Kenyan Banks Are Frustrated by Central Bank’s ‘Control’ of Loan Rates

Commercial banks in Kenya have expressed their frustrations over the Central Bank of Kenya’s decision to cap lending rates, after earlier blocking the banks from raising the cost of loans.

Business Elites Africa understands that even though many banks submitted their new loan pricing formulas at the behest of the Central Bank of Kenya, the apex bank had gone silent on them refusing to approve their submissions.

Do note that the loan pricing formulas are used as the basis for setting interest rates on new credit facilities. But this is only ideal in a situation where the government is not the one controlling/capping loan rates.

“Banks were asked to submit their risk-based loan pricing formulas but none has been approved by the CBK to date. Some applications were made as early as January. This is CBK’s way of controlling interest rates because risk-based lending means raising rates for riskier borrowers,” claimed the CEO of a top Kenyan bank who spoke anonymously to Business Daily Africa.

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Other bank CEOs who spoke to the publication also explained that the delay in shifting to risk-based lending has forced them to resort to investing in government securities, thereby limiting their lending to Kenyans. In the meantime, only high quality customers with very low risk of loan default are able to access loan from these banks.