Finance Minister Njeru Githae has expressed concerns over high interest rates the market is experiencing currently. Githae noted that although The Central Bank of Kenya has cut the base lending rate to 13% currently from 18% in June, commercial banks still have their rates higher than 18% with the spread – the difference between interest on borrowing and interest paid on deposits – widening further.
“Interest rates continue to remain high, with most banks base lending rates being above 18%. I am particularly perplexed at the high interest rate spread which is as high as 12%. This state of affairs is not conducive to investment and I urge banks to reconsidertheir positions and make interest rates even more affordable.” Githae said at the commencement of trading of NIC Bank shares at the Nairobi Securities Exchange on Tuesday. He went on to add that “The Government, on its part, will continue to promote reforms in the capital markets in order to increase access to affordable credit to spur investment.”
After the Central Bank reduced the base rate to 13% from 16.5% in June, commercial banks followed suit reducing their rates by similar margins bringing the average base lending rate to 20.13%.
Below is a table of current base lending rates offered by commercial banks in the country as of October 1st 2012.
During the last Monetary Policy Committee meeting, Central Bank Governor Njuguna Ndung’u expressed concerns that commercial banks were not transferring the overall effect of low base rates to borrowers.
“The Committee noted that interest rate spreads remained high suggesting that these cost reductions had yet to be fully transferred to bank customers and the economy at large through declining cost of credit,” Ndung’u noted.
Earlier this month Chief Executive of the Kenya Bankers Association Habil Olaka attributed this to expensive deposits. “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.” He said.
With the low base lending rate, commercial banks are expected to lower their rates to give borrowers affordable loans. Interest rates on loans sky rocketed to an average of 25% in October 2011 up from an average of 15% a year earlier making borrowers shun taking new loans.