One month after the Central Bank of Kenya cut the base lending rate, the response by banks to reduce their lending rates has been slow. Although a number of banks have already implemented their rate cuts, with some setting mid this month as their dates, the margins by which the banks have reduced their rates is small compared to CBKs move.
CBK cut the CBR to 13% and 16.5% in August and June from 16.5% and 18% respectively, prompting commercial banks to lower their rates with average lending pegged at bout 25% in April this year. Currently, the average lending rate is at 20% according to CBK.
In an interview with CNBC Africa last month, Kenya Bankers Association Chief Executive Officer Habil Olaka, said the reason banks are perceived not to be responding as quickly to CBKs signal is because the CBR is a policy rate and banks have to put in consideration their own financial positions through cost of the deposits they have.
“This can only be done when the banks are able to pick cheap deposits and translate it through their lending by offering lower loans based on reduced cost of funds (cheap deposits)” Olaka said.
And added: “A number of banks are still struggling with expensive deposits they picked earlier and it only upon the rates coming down that they can transmit that to the borrower.”
The table below shows how banks have cut their rates to date.
