Nairobi Star (Nairobi)
Peter Kiragu
14 December 2011
Concerned over a likelihood of a high default rate due to the increasing lending rates banks yesterday announced a raft of measures to ease the burden of borrowers The Kenya Bankers Association signed a commitment that its members will not increase their lending rates despite the latest increase of the Central Bank Rate from 16.5 per cent to 18 percent. This is the rate at which the Central Bank lends to them.
This direction will however apply to existing borrowers while new borrowers will be subjected to the current high rates which go up to 30 per cent. Kenyans have been subjected to frequent interest rate adjustments on their existing loans after the Central Bank kicked off a sustained raise on the rate it lends to banks to strengthen the shilling and catch run away inflation.
The new pledge by banks will therefore present a partial relief to millions of Kenyans who are already suffering from high commodity, food and energy prices. Banks have also agreed to lengthen the loan repayment period for their customers to avoid any threat of default. This means that a person servicing a loan to repay within 12 months may now find themselves paying in 15 months.
In addition, banks have been advised to not increase the loan repayment amount by more than 20 per cent of the current level of installment. The installments will then be spread out leading to extension of the repayment period. “Extending loan repayment periods periods will ease the sudden increase in loan repayment burden on the part of the borrowers,” said Richard Etemesi, the KBA chairman and Standard Chartered Bank chief executive in a statement issued after a meeting between the Treasury, the Central Bank of Kenya and KBA at Treasury building.
Deputy prime minister and finance minister Uhuru Kenyatta said the current high interest rate environment was temporary. “These are short term shocks,” Uhuru said adding that the new measures will ensure the impact of the shocks are as minimal as possible. The meeting also resolved that borrowers will not be subjected to a penalty over early repayment of loans. “Waiver of early repayment penalties will ensure that borrowers are not subjected to additional financial burden when interest rates ate rising,” the statement added.
KBA chief executive officer Habil Olaka asked borrowers to approach their banks for discussions on how best to repay their increased loan amounts without risk of default. “KBA is confident that these measures will protect the interests if both borrowers and banks,” Olaka said.
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