The lending rate has been climbing steadily since the third quarter of 2015 to stand at 17.4 percent last month, from a low of 15.2 percent in May, latest data from the Kenya National Bureau of Statistics showed Wednesday.
The rise in the borrowing rate has been attributed to an increase in yields on government securities, particularly in the third quarter of 2015, where interest rates on Treasury bills and bonds hit 23 percent.
The yields, which were on the rise since July, then cooled off going down to below 10 percent for the benchmark 91-day Treasury bills.
However, once again, the rates began to climb mid-December, with yields on the 91-day bills currently standing at 12 percent while those of the 364-day bills at an average of 15 percent.
Fall and rise of Treasury bills yields greatly affects lending rates in the East African nation.
This is because commercial banks factor them when calculating their lending rates using a loan pricing formula known as the Kenya Banks Reference Rate (KBRR) introduced by the Central Bank of Kenya (CBK) over a year ago.
Besides, commercial banks are the biggest lenders to the government through the buying of Treasury bills and bonds.
KBBR is based on averages of the CBK’s indicative rate (now at 11.5 percent) and the 91-day Treasury bill yield over six months.
With the minimum lending rate standing at 17.4 percent, some commercial banks in Kenya are offering new loans at an interest rate of up to 25 percent.
Existing customers with loans, too have not been left behind, as their rates have been adjusted upwards.
“I am servicing a 58,823 U.S dollars mortgage having bought a three-bedroom house in 2014. In October last year, I got a notice from the lender that our rates would be adjusted upwards, but the move was shelved a month later after Treasury bills yields went down December but my January statement shows the rates have once again been increased,” said Vincent Murgo, an employee of a leading telecom in Nairobi.
Murgo said he is expected to complete paying for the house in about 13 years, but going by the fluctuating interest rates, he may not achieve the goal.
“High rates of course mean more cash to be paid, which to me adds to the number of years I am supposed to repay the loan,” he said.
CBK Governor Patrick Njoroge has in the recent past held several meetings with commercial banks managers, the latest in November, in bid to reign in on the rising interest rates.
Kenya’s lending rates are among the highest in the world, with analysts blaming the phenomena on banks quest for profits at the expense of their customers and economy.
“Borrowing rates in Europe and Americas are as low as 2 percent but banks still make profit. There are no more risks in operating a bank in Kenya than in Britain or the U.S., therefore banks need to put the interest of the country fast,” said Henry Wandera, an economics lecturer, adding that there is hope for consumers as the current CBK governor is keen on seeing the rates come down. Enditem