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Average bank lending rates remained flat last year despite demand for credit going up as the economy rebounded, with banks unable to get regulatory approval to raise rates on riskier borrowers.
Lenders charged 12.1 percent on average for loans last year, compared to 12 percent the previous year.
While demand for credit has gone up in the personal and household, trade and manufacturing segments, growth of lending to the private sector has been largely muted.
It stood at 8.6 percent at the end of last year compared to 8.4 percent in December 2020.
Lenders have cited delays in the CBK’s approval of their applications to raise the cost of loans, saying that doing so without authorisation will attract reprisals from the regulator.
On its part, CBK has said it has examined the new loan pricing models presented by banks and found them wanting, sending the lenders back to the drawing board.
“We required banks to redo their business models so as to deliver on this. They have been discussing with us what their modelling is and how they will implement it,” said CBK governor Patrick Njoroge in a briefing at the end of January.
“If they don’t show how their homework is done then we send them home to come up with or explain their workings. We have done that with all of them… they need to do it to our satisfaction.”
The sector is targeting risk-based pricing of loans that will allow more segments of the economy to access credit, while at the same time letting the lenders price in a premium into their loan rates depending on the risk profile of the borrower.
Ideally, growth in private sector credit should have gone up in tandem with the growth of the economy in the past year after easing of Covid-19 pandemic restrictions.
The CBK estimates that the economy grew by eight percent last year, compared to the 0.3 percent contraction it recorded in 2020.
While lenders have been unable to raise rates significantly for private-sector loans, they have found a willing taker of funds in the government.
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