More expensive loans for borrowers as banks raise interest rates

Concept of lending by commercial banks to companies and individuals. [iStockphoto]

Kenyan banks have started raising interest rates following the decision by the Central Bank of Kenya (CBK) to raise its benchmark lending rate.

Standard Chartered Bank is the latest bank to raise its base lending rate, as banks begin to react to the central bank rate (CBR) hike from 7% to 8.25%.

“Dear Customer, Standard Chartered Bank’s internal base lending rate will be revised upwards from 8.5% to 9.25% effective November 14, 2022. This adjustment will affect your KES lending facilities held with us”, read a message from Standard Chartered to its customers.

Previously, NCBA Bank had also sent communications to its customers informing them of its decision to revise its base lending rate from 8.9% to 10% per annum for shilling-denominated credit facilities.

The base lending rate for dollar-denominated credit facilities will drop from eight percent per year to nine percent per year, the NCBA told its customers.

“In line with the increase in the Central Bank of Kenya (CBR) rate from 7% per annum in April 2022 to the current rate of 8.25% per annum and the increase in the US Federal Funds rate by 0.25 per annum in January 2022 at the current rate of 3.25% per annum, NCBA Bank’s base lending rates for Kenyan shillings and US dollars will be adjusted as follows,” reads the message from NCBA Bank .

The monetary policy committee of the CBK, the highest decision-making body, increased the CBR from 7% to 8.25% in what was aimed at combating inflation – persistent increase in the prices of goods and services in the economy.

MPC also cited high global risks and their potential impact on the domestic economy, among the main reasons for tightening the money supply by raising the benchmark lending rate.

This is the highest CBR since January 2020 and comes at a time when the country is grappling with soaring prices for goods and services as well as a weakening shilling.

The CBR is the rate at which banks borrow from the CBK before onlending to consumers. When the CBR rises, banks tend to raise their interest rates on credit facilities.

The interest rate hike comes at a time when President William Ruto is poised to deliver on his campaign promise of cheap credit to his support base which includes jua kali artisans, boda boda operators and mama mboga commonly referred to as scammers.

President Ruto has anchored his agenda for the next five years on making credit affordable, especially for small traders who in the past have found themselves paying more for loans.

“Affordable credit makes a huge difference in the growth rate of businesses,” Ruto said in a speech at the opening of the 13th legislature last month.

However, with the CBK battling inflation, the president’s plans for cheap credit could be delayed as the apex bank tightens the money supply by raising the rate at which it lends to banks.

Tighter liquidity should have a negative effect on access to credit for individuals and businesses.

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