Kenyans Feel the Pinch as Banks Raise Interest Rates

Kenyan banks have begun increasing the rates on their shilling-denominated loans following the Central Bank of Kenya's decision to raise its benchmark lending rate to an 11-year high.

In a recent development, NCBA Bank has opted to raise its base lending rate from 14.5 per cent to 16.5 per cent. This decision aligns it with Equity Bank which recently made a similar announcement. The increase in the base lending rate was driven by the Central Bank's objective to stabilize the shilling and curb inflation. Consequently, other banks have also adjusted their lending rates, with a particular emphasis on new loans rather than existing credit facilities.

This decision suggests that challenging times lie ahead for both companies and customers who are already grappling with a rise in the overall cost of living. As NCBA Bank remains tight-lipped about the exact launch date of their adjusted rates, Equity Bank has followed through with its rate changes and put them into practice. In September, NCBA's loan portfolio in Kenya stood at Sh270.6 billion, an increase from the previous year's Sh238.3 billion.

Equity Bank took the lead in raising loan fees right after the Central Bank of Kenya's recent intervention. Equity Bank's loan portfolio in the Kenyan market reached a value of Sh454.4 billion in September, up from Sh422.32 billion the previous year. The average interest rates of commercial banks have been steadily climbing, hitting 13.68 per cent in September. As a result, there has been a notable surge in defaulted loans, which can be attributed to the combination of higher debt service costs and the worsening financial situations of businesses and households.

In August, defaulted loans reached a 16-year high, accounting for 15 per cent or over Sh596 billion of banks' total loan books. This non-performing loan rate matches that of June 2007, which was 14.5 per cent. Despite warnings from banks, the Central Bank of Kenya chose to ignore calls to keep the benchmark lending rate at 10.5 per cent, citing the need to slow the depreciation of the shilling. The central bank had maintained this rate since the end of June due to decreasing inflation.