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CBK says to step-up purge on banks not lowering interest rates
The Central Bank of Kenya in Nairobi. The expectation by some investors was that the CBK would yield to pressure and start accepting pricier bids in order to meet the expanded target. It did not.
The Central Bank of Kenya (CBK) has warned of a stiffer fine against commercial banks that failed to cut their interest rates in line with its indicative lending rate to unlock cheaper credit.
CBK Governor Kamau Thugge told the National Assembly Finance and National Planning Committee that any lender found to be culpable of withholding benefits of reduced lending costs to borrowers will be penalised.
“To ensure banks are implementing the Risk-Based Credit Pricing Model (RBCPM), the CBK has embarked on an on-site inspection of banks to ascertain that they are reducing their interest rates in line with RBCPM,” he said.
“Banks are required to take the necessary steps to lower their lending rates further, to stimulate growth in credit to the private sector, and support economic activity,” he added when he appeared before the committee on Tuesday.
He told the committee that banks found to be maintaining high lending rates will face penalties equivalent to three times their unjust gains.
“We are conducting onsite inspections to determine if the cost of funds for banks has gone down. If it has, then we expect lending rates to follow suit,” Dr Thugge said. “If banks are found to be profiting unfairly by not adjusting rates downward, they will face penalties equal to three times their unjust gains, as provided under the Business Laws (Amendment) Act.”
He said while banks quickly raise lending rates when the CBR increases, they are much slower in lowering them when base rate is lowered.
Dr Thugge said the government’s rising borrowing needs are also putting pressure on lending rates given that the fiscal deficit and growing domestic borrowing are crowding out private sector access to credit.
“When we started this financial year, before the Finance Bill was withdrawn, the projected net domestic borrowing was slightly below Sh400 billion.That figure later increased to Sh430 billion in the first supplementary budget and to Sh584 billion in the second supplementary budget,” he said.
