Kumeharibika! Be Ready For Expensive Loans As Banks Adopt New CBK Lending Rate
Access Bank has recently announced its decision to raise loan prices in alignment with the updated rates set by the Central Bank of Kenya (CBK). This development follows the CBK’s decision on June 26 to increase the Central Bank Rate (CBR) from 9.5 percent to 10.5 percent. In a notice issued on Monday, Access Bank stated that they will adjust their interest rates accordingly, reflecting a revised Access Bank Base Rate of 14.63 percent.
However, it should be noted that the final loan pricing, set at 14.63 percent plus a margin, will be determined based on the customer’s credit risk.
“We would like to inform our valued customers that, in light of the Central Bank Rate increase on June 26, from 9.5 percent to 10.5 percent, we will be adjusting our loan interest rates to reflect a revised Access Bank Base Rate of 14.63 percent, with an additional margin based on the customer’s credit risk,” stated the bank.
These new rates will be effective from August 8 and will be applicable to both existing and new credit facilities denominated in Kenyan Shillings.
Equity Bank, on the other hand, was the first institution to implement the loan interest adjustments in accordance with the new CBK rates.
As of July 6, their customers began to experience the impact of the revised rates, resulting in higher loan servicing costs.
Equity Bank made it known that they would modify their lending rates to 14.69 percent, up from the previous 12.5 percent.
“In light of the CBR adjustment on June 26, 2023, from 9.5 percent to 10.5 percent, we hereby inform our customers that we will be adjusting our loan interest rates to reflect a revised Equity Bank Reference Rate (EBRR) of 14.69 percent, plus a margin based on the customer’s credit risk, effective from July 10, 2023,” clarified Equity Bank in an official notice.
The overall inflation for June remained elevated at 7.9 percent largely due to an increase in the price of food, fuel and electricity according to Kenya National Bureau of Statistics data. Inflation for May stood at eight percent.
The increase in interest rates is, however, expected to trigger high loan default rates in the banking sector and stifle credit to the productive sectors of the economy.
Growth in private sector credited remained unchanged at 13.2 percent in April and May this year.
According to the central bank, overall inflation is expected to remain elevated in the near term mainly due to the recent increases in electricity prices, removal of fuel subsidy and associated second round effects.
The National Treasury has already written to CBK setting the inflation target for the 2023/24 fiscal year.
The target is set at five percent with a flexible margin of 2.5 percent on either side in the event of adverse shocks.
