Banks push to fight CBK loan rate freeze

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Economy

Banks push to fight CBK loan rate freeze


Central Bank of Kenya. PHOTO FILE | NMG

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Summary

  • Banks have now turned to their lobby, the Kenya Bankers Association (KBA) to push the sector regulator to approve the loan pricing models that are supposed to guide them in lending after the rate cap is removed.
  • The Central Bank of Kenya (CBK) had asked banks to submit new loan pricing formulas that would serve as the basis for setting interest rates on new loans following the removal of lending rate controls on November 7, 2019.

Banks have now turned to their lobby, the Kenya Bankers Association (KBA) to push the sector regulator to approve the loan pricing models that are supposed to guide them in lending after the rate cap is removed.

The Central Bank of Kenya (CBK) had asked banks to submit new loan pricing formulas that would serve as the basis for setting interest rates on new loans following the removal of lending rate controls on November 7, 2019.

However, the regulator has yet to give the approvals for more than a year since the law paved the way for banks to start rating loans based on each applicant’s risk profile.

Banks have filed individual applications with the CBK, but the pending approval has now prompted them to step up their efforts to secure approval by turning to the KBA – the banking industry lobby – to resolve the impasse.

Many banks say they have yet to embrace the new pricing models, which are supposed to give them the ability to lend to high-risk customers at rates the old price controls would not allow.

KCB Group chief financial officer Lawrence Kimathi said KBA was in talks with the regulator and hopes this is something that should be “quickly resolved”.

“This conversation always takes place at the industry level. It was taken over by the KBA. From a priority point of view, not sure if this is a priority for 2020 in the environment in which we were, ”said Mr. Kimathi.

Lenders had to continue operating as if they were still under loan rate control to avoid retaliation from the regulator in the absence of approved formulas.

Failure to assess risk in lending decisions threatens to exclude many potential borrowers as banks seek to reduce their exposure to already large defaults caused by the Covid-19 pandemic.

Standard Chartered Bank Kenya chief financial officer Chemutai Murgor said the lender has had “good conversations” with CBK and hopes for a positive outcome.

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