Rates uptick after CBK nod – report
Borrowing rates are on the uptick after Central Bank of Kenya (CBK) started approving applications from lenders, an analyst report shows.
Analysts at Sterling Capital say the regulator has approved applications for interest rate hikes for three tier three banks and Absa Bank Kenya. Absa has increased its base rate by 50 basis points from 7 per cent to 7.5 per cent.
The base rate is the primary interest rate on which factors such as risk are added to arrive at the final market rate for interest.
“There was an upward adjustment of lending rates by some banks notably Absa Bank Kenya which in June revised its base lending rate upwards by 50 bps to 7.5 percent,” Sterling Capital research team said.
They say that as a result, average lending rate surged marginally by 10 basis points to 12.1 per cent during the period in review. According to Kenya Bankers Association (KBA) Chief Executive Habil Olaka, banks are getting approval for their risk based pricing models, saying it is between banks.
Surge in T-Bill rates
“This will be applicable going forward on the new facilities under consideration, not to go backwards and revise the rates in place,” said Olaka. “This is between the banks and the CBK, and KBA is not involved. So we do not know details of these discussions, or who has received and who hasn’t received approval of their models.”
The expert report however attributes this trend to the gradual surge in T-bill rates.
“Based on interest rate movements mentioned above, we expect banks to report subdued growth in interest expense compared to strong growth in interest income on loans and advances,” said Renaldo De Souza, of Sterling Capital.
The lenders had earlier accused CBK governor Patrick Njoroge and they reportedly complained to the IMF citing continued regulation of interest rates despite scrapping of rate caps by the Parliament.
CBK had in the past accused banks of being too profit driven instead of seeking to grow the economy by aiding access to affordable credit.
No revisions were made to the Central Bank Rate since March 2020 and Cash Reserve Ratio which were retained at 7 per cent and 4.25 per cent respectively.
“We do not expect any revisions to the rates at least in the first half of 2022 on account of stable macroeconomic conditions,” the analysts said.
However, significant deterioration in macro-economic conditions and particularly inflationary pressure and currency depreciation could result in an upward adjustment of the Central Bank Rate.
Monetary policy
Average Private Sector Credit growth declined to 7.8 per cent in 2021 compared to 8.1 per cent in 2020. This was an indication that the impact of monetary policy measures imposed in the first quarter of 2020 to increase credit access were wearing off.
High credit risk is the main reason for decline in PSC with total banking sector NPLs averaging 13.9 percent compared to 13.2 percent in 2020.
At the same time the average net credit to the government up to November 2021 stood at 30.7 per cent compared to 27.7 per cent over the same period in 2020.
