Banks have cut the cost of credit to the lowest level in 15 years following the drop in the Central Bank of Kenya benchmark lending rate and a reduction in demand for new loans. The latest development has eased fears of a rise in the cost of credit after the removal of the interest rate cap last November.
Fresh data from the Central Bank of Kenya (CBK) shows that lending rates averaged 12.19 percent in February, the lowest since January 2005 when it stood at 12.12 percent during the reign of former governor Andrew Mullei.
Kenya in November scrapped the cap on commercial lending rates, which had been blamed for stalling lending to small businesses and individuals. The removal of the legal cap led to fears of a likely to return to the era of high lending rates, which had at one point hit a high of up to 25 percent.
NCBA managing director John Gachora told the Business Daily that the lower cost of loans was in line with a fall in the central bank benchmark lending rate as well as the sluggish economic growth that has suppressed appetite for new loans.
“Banks have been clear that they were not asking for rate cap removal in order to raise rates. We said we would discipline ourselves and the data speaks to that,” said Mr Gachora.
