Wednesday, May 25, 2022

Sad News To Kenyans On Loans As The Govt Makes An Announcement

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Pressure from the International Monetary Fund has compelled the central bank of Kenya to allow banks to increase the interest rates to be between 13 percent to 18.5 percent.

For along time the average lending rate had been set at 13.5 percent that protected Kenyans against exploitation.

Banks have been eager to price loans to different clients based on their risk profile but this flexibility remained a mirage after the CBK stepped in as the de facto controller of cost of credit.

Citizens of Kenya will have to bear the burden of paying higher interest rates depending on the risk and nature of the loans that they are taking from the various banks.

Equity Bank on Monday said the regulator had approved its risk lending models following two years of talks, indicating CBK has now started allowing banks to gradually raise rates.

“Interest on loans will now be based on the risk of the client. We are using sovereign risk as the base, then adding the risk of the individual sector and then within the sector the specific client risk and then we add operational costs,” Mr Mwangi said.

“So instead of the previous [pricing model] where we had loan appraisal fees, and all the rest, we are now saying here is one rate of interest and it is annualised and on reducing balances. We have simplified and removed the fees and combined the rate into one based on the sovereign risk.”

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