Commercial Bank of Africa (CBA) became the first bank to lower its interest rate on loans to 12.9 following complaints by borrowers that at the rate of 14.5 adopted by most banks, interest rates were still way above the expected.
The argument was that high interest rates made loan repayment difficult and stifled the growth of the economy.
Supply and Demand
According to Central Bank of Kenya (CBK), the Kenyan banking industry in Kenya is characterized by a lack of clear information and complicated price structures coupled with an environment in which demand exceeds supply.
And because of this high demand, the users of bank services are “largely unaware of price differences among banks” with some banks charging as high as 30 per cent on loans.
Results of High Charges
This, according to CBK, led to:
- Mistrust and lack of awareness by the consumer,
- Lack of clear information by banks to customers
- High bank charges
- Lack of transparency in costs
- Poor branch networks
- A product driven rather than a market driven approach
When ranked on loans, current accounts and savings accounts, CBA had the best score among the banks that have branch networks of more than 10. The following is the ranking, starting from the worst:
- NIC Bank
- Equity Bank
- Standard Chartered Bank
- Co-operative Bank of Kenya
- National Bank of Kenya
- Consolidated Bank of Kenya
- Barclays Bank of Kenya
- K-Rep Bank
- KCB 4.
Purpose of New Policies
It was because of these findings that the CBK went ahead to introduce new policies to regulate the banking industry with a maximum rate of interest that banks can charge. The new policies aim to ensure that:
- Banks provide information to their customers with information on various bank charges and lending rates so that they can make informed banking choices
- provide consistent pricing information to the customer through quarterly reports
- encourage customers to utilize this information
- encourage competition on the basis of price (or value) among commercial banks
With the reluctant of lower interest rates commercial banks, Kenyans are wondering how long the new banking policies will hold and whether CBK will be able to ensure no hidden charges are introduced along the way.