by Bedah Mengo
NAIROBI (Xinhua) -- Lending charges in
Kenya have declined by 1.5 percent in about two years since the
introduction of law to cap charges, with the lower rates
expected to boost the country’s economic growth.
rates declined to two-year low this week after the Central Bank
cut its benchmark rate to 9 percent from 9.5 percent, the lowest
in two years.
The law introduced in September 2016 capped rates at 4
percent above the top bank rate.
Commercial banks in the East African nation have consequently
taken cue from the Central Bank to lower their rates, thus
handing Kenyans cheaper loans in years.
Kenyan citizens are now paying 13 percent on loans, including
mortgages, a drop from up to double the amount.
The low rates have come as a big relief to borrowers, with
banks scrambling to announce they have reduced their charges as
they fight for customers.
Equity Bank, Kenya’s biggest lender by customer base, is one
of the institutions that has cut its rate after Central Bank
James Mwangi, the chief executive, said on Thursday the lower
rates would attract more borrowers.
"We have reduced our charges to 13 percent.
The affordable interest rates will stimulate private sector
borrowing, enhancing the economic growth rate," he said.
Besides the lending charges, the bank also capped the
interest on saving deposits at 6.3 percent, which is 70 percent
of the Central Bank Rate as provided in the banking laws.
While cutting its rate, the Central Bank’s monetary policy
committee noted that private sector credit grew by 4.3 percent
in the 12 months to June, compared to 2.8 percent in April.
"Credit to the manufacturing, building and construction, and
trade sectors grew by 12.3 percent, 13.5 percent, and 8.6
percent, respectively. Growth in private sector credit is
expected to pick up gradually with the continued recovery of the
economy," said the apex bank.
Borrowers have welcomed the new charges, a majority with
long-term loans eagerly waiting to see them effected at the end
of this month.
"I have a 15-year mortgage loan of which I have paid for five
"My bank reduced charges since the caps were enforced, I am
happy they are going to fall this time round," said Lucas Maina,
an employee of a telecom in Nairobi.
However, Maina would not celebrate the low charges for long
as the Central Bank is keen on amending the law to do away with
the rate ceiling.
The bank notes that whereas demand for credit increased
following the capping of lending rates, credit to the private
sector has remained low.
"The interest rate caps infringe on the independence of the
Central Bank and complicates the conduct of monetary policy.
"It is found that under the interest rate capping
environment, monetary policy produces perverse outcomes," said
the bank in a recent report.
The lending caps are expected to be done away with once MPs
debate and pass the Financed Bill presented by the Treasury in
parliament in June.