CBK reveals Kenya’s Cheapest and Most Expensive banks

In the most recent regulatory disclosure, small lenders like First Community Bank (FCB), Ecobank of Kenya, and HF Bank dominate the list of banks offering lower interest rates, placing big players like Absa and Equity Group among those with the highest rates.

According to data from the Central Bank of Kenya (CBK) on the typical lending rates offered by commercial banks, 27 of the 39 banks increased their average rates in the three months leading up to March.

According to the review, Credit Bank has the highest rate at 17.6 percent and FCB has the lowest rate at 9 percent. Sidian had the highest rate in December at 14.6%.

FCB, a shariah-compliant lender, had a uniform rate of 9% for personal, business, and corporate loans when it received approval in March to sell 62.5 percent of its stake to Premier Bank Limited of Somalia.

Following with an average rate of 10.7% is Ecobank Kenya, followed by HF and Access Bank Kenya with rates of 11 and 11.2 percent, respectively.

With an average loan rate of 17.6 percent, Credit Bank tops the list of lenders with the highest rates, followed by Middle East Bank (16%) and Sidian (14.9%).

Absa and Equity Bank Kenya, the nation’s most lucrative lender, are ranked sixth and seventh, with average interest rates of 14.2 percent and 14.1 percent, respectively.

However, costs like negotiation fees, legal fees, and insurance, which typically raise the actual cost of servicing loans, are not taken into account in the banks’ disclosures to the CBK.

In order to increase transparency, banks frequently post a breakdown of other fees on a website created by the Kenya Bankers Association (KBA) and the CBK.

Due to the smaller loan size compared to corporate loans, lenders who focus more on personal and SME banking typically charge higher fees.

Some lenders who receive a lot of repeat business reduce the fees on subsequent loans.

After receiving approval from the CBK last year, Absa will implement the risk-based pricing model for loans in the second half of the year.

Equity had informed customers in January that it was reviewing its lending rates and would now range from 12.5% to 21.02% after beginning to use risk-based pricing in a setting where benchmark rates were rising.

As a counter-inflation measure that paved the way for more expensive loans, the CBK increased its benchmark lending rate to a five-year high of 9.5 percent at the end of March from 8.75 percent.

The jumbo rate increase was intended to reduce credit demand in an effort to contain inflation, which fell from 9.2 percent in March to 7.9 percent in April. However, for 11 straight months, inflation has exceeded the government’s desired upper limit of 7.5 percent.

A new CBK meeting is scheduled for today (Monday), and the KBA has urged the regulator to maintain the benchmark rate at its current level.

Despite the current economic challenges that have seen defaults begin to rise, banks have been relying on the higher benchmark rates to raise their interest rates.

The average commercial bank lending rate increased from 12.7 percent in December to 13.06 percent in February, breaking the 13 percent barrier for the first time since July 2018.

With more than 25 commercial banks starting to review the cost of loans based on borrower risk profile, interest rates are predicted to reset higher this year as a result of the increased adoption of risk-based pricing.

KCB Group announced that it had received CBK approval, enabling KCB Kenya and National Bank of Kenya (NBK) to price loans based on risk levels during the release of first-quarter results. This approval is still pending.

According to CBK data, KCB had an average interest rate of Sh12.3 percent by the end of March, ranking it alongside Standard Chartered Bank of Kenya as the lender with the ninth-friendliest loan terms.

After Equity, which ended the quarter with Sh448.9 billion, KCB Kenya’s loan book reached Sh654.7 billion in March from Sh613.9 billion in December, making it the largest volume in the market.

Co-op Bank, NBK, and Prime Bank all averaged 12.9 percent during the review period, while NCBA and I&M reached 13.6 percent.

Big banks’ strong pricing power, which is based on a broad distribution network, a variety of services, and well-established brands, has been linked to the higher cost of credit among these institutions.

On the other hand, small lenders are compelled to engage in price-cutting to compete for clients. In contrast, small banks had the highest cost of credit in the years prior to the rate cap.

The small lenders were adding a margin and taking expensive wholesale deposits.

However, all banks were forced to lend at a maximum rate of 14 percent for the majority of the time under the rate caps, which were in place between September 2016 and November 2019.