Kenyan Borrowers Face Fresh Blow as Banks Push Loan Rates to 19%

Borrowers seeking loans from some of Kenya’s smaller banks are facing significantly higher interest rates as lenders grapple with rising costs of attracting and retaining deposits.

Credit Bank recorded the highest average lending rate among the banks in August, charging borrowers an average of 19 per cent, according to the latest figures.

Bank of Africa Kenya and Access Bank followed, with both recording average lending rates of 17 per cent.

The figures highlight the pressure facing smaller lenders as competition for deposits pushes up their funding costs — a development that can ultimately feed through to the cost of borrowing for households and businesses.

Smaller lenders face growing funding pressure

Banks rely heavily on deposits to fund lending, meaning the cost of attracting those deposits can have a direct impact on the rates charged to borrowers.

For smaller lenders, competing for deposits can be particularly challenging when compared with larger banks with broader customer bases and established funding networks.

Higher funding costs can therefore leave some banks with little room to reduce lending rates, even as borrowers and businesses seek cheaper credit.

The development comes at a critical time for Kenya’s banking sector, with attention now turning to the next interest-rate decision by the Central Bank of Kenya (CBK).

Bankers expect CBK to keep rate at 8.75 per cent

The Kenya Bankers Association (KBA) expects the CBK to maintain its Central Bank Rate at 8.75 per cent when the Monetary Policy Committee meets on Wednesday.

The banking industry body argues that keeping the policy rate unchanged would provide greater stability for lenders and borrowers while supporting the flow of credit to the private sector.

The decision will be closely watched by banks, businesses and consumers, particularly as lenders continue to balance the need to attract deposits with pressure to make loans more affordable.

Rate decision could shape borrowing costs

A decision to hold the rate would give banks greater certainty as they assess their funding costs and determine how to price loans.

For borrowers, however, the central bank’s decision is only one part of the equation.

While the Central Bank Rate influences the broader cost of money in the economy, individual banks also take into account their own funding costs, operating expenses and assessment of credit risk when setting lending rates.

That means borrowers at smaller banks could continue to face relatively high rates even if the CBK maintains its current policy stance.

Private-sector lending in focus

The KBA has said a stable policy rate would help support private-sector credit and wider economic activity.

The banking sector has faced continued pressure to increase lending to businesses and households, particularly as policymakers seek to support economic growth.

The MPC’s decision will therefore be closely scrutinised for signals on where borrowing costs could head next.

For borrowers already facing elevated loan rates, the key question will be whether stability in the central bank’s policy rate eventually translates into more competitive lending rates — or whether rising deposit costs continue to keep borrowing expensive.

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