Consumers decry new card rates

Tuesday, June 14th, 2022 02:00 | By

Banks may be lending at disproportionate rates even as the Central Bank of Kenya (CBK) adjusted its base lending rate to 7.50 per cent in May, experts say.

The regulator, through its monetary policy committee (MPC) raised the Central Bank Rate (CBR) by 50 basis points from 7 per cent to 7.50 per cent, citing inflation and supply chain disruptions.

Collins Nakholi, a financial analyst with Koppert Global says some banks, the latest being NBCA Bank Kenya, have raised their credit card interest rates to 3.5 per cent per month from between 1.1 and 1.5 per month during the Covid-19 pandemic period.

Move may reduce use “Most lenders have since reviewed their rates to 3.5 per cent per month which is a crazy rate if compounded per annum to 42 per cent per month,” Nakholi told Business Hub, a prospect he sees reducing their usage.

Last week, NCBA Bank Kenya indicated to its customers it would raise its credit card rate by 2.42 points to 3.5 per cent per month effective July 9 2022.

“We are writing to let you know about some changes to your credit card agreement. Effective 09th July (“Effective Date”) we have revised our credit card interest rates from the current 1.08 per cent per month to 3.5 per cent per month,” NCBA said in a communique to its customers. Credit cards blend the basic functions of an ATM card and a credit card to help consumers quickly access cash from their bank accounts.

Ken Gichinga, the Chief Economist at Mentoria Economics noted that credit card interest has been a growing revenue stream, particularly within the consumption-driven demography.

“Ideally, if CBK raises its base rate by 50 basis points, banks should also raise theirs by the same. This (NCBA’s) is an example where banks will take an opportunity to raise more than is justifiable and reap from CBK’s rates,” said Gichinga.

The move could also be attributed to an appetite for risk-based lending by banks, where lenders assign loan rates based upon an individual’s credit risk.

It may also set the stage for expensive credit for small and medium enterprises and workers in the informal sector.

Kenya Bankers Association chief executive Habil Olaka said six commercial banks have the green light to roll out the pricing model.

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