Kibaki Appeals to Banks to Lower Lending Rates

Nairobi Star (Nairobi)

Peter Kiragu

21 June 2011

PRESIDENT Mwai Kibaki has asked commercial banks to lower their lending rates to the private sector. The president said Kenya currently has the highest interest rates spread ( the interest paid on loans compared to that paid on deposits) in the region and issue that needs to be addressed.

While the average lending rate in the market is around 13.5 per cent, deposit rates average around 3.5 per cent leaving a difference (spread) of more than 10 per cent. “Interest rates spreads in Kenya are the highest in the region,” said the head of state while unveiling Standard Chartered Banks’ Sh3.3 billion new East African headquarters. “This trend will not help towards the achievement of our development agenda.”

The president’s appeal is however unlikely to be heeded by the banks which are already angling to adjust their interest rates further up in line with a move by the Central Bank of Kenya to increase it central bank rate.

At the beginning of this month, the CBK monetary policy committee raised the CBR rate by 25 basis point from 6 per cent to 6.25 per cent.

The CBR rate is the rate at which the Central Bank lends to commercial banks as a lender of last resort. The rate signifies to banks the base rate at which they should peg their loans. An upward revision in the rate often leads to an increase of interest rates on loans.

Commercial Bank of Africa last week raised its interest rates by 1.5 per cent. The bank raised the minimum lending rate to 14.5 per cent from 13 per cent effective from July 11. And yesterday, Barclays Bank of Kenya indicated it was considering revising its interest rates. “I think the trend is clear; the interest rates will go up,” said Barclays managing director Adan Mohamed on the sidelines of an event.

And on the question if the bank would be raising its rates soon, Mohamed said: “We’ll just have to play with the market and see where it goes.”

A similar warning was issued by the Co-operative Bank of Kenya last month. Managing director Gideon Muriuki speaking during the bank’s annual general meeting said interest rates will be going up in the next few days. “The rates are going up definitely,” said Muriuki.

AllAfrica – All the Time