The Central Bank of Kenya (CBK) has frozen a bid by banks to raise the cost of loans following the scrapping of lending rate controls on November 7, 2019, and, in turn, prompted protests from the lenders that are suffering reduced profits.
The regulator had asked banks to bring forward a new loan pricing formula that would be the basis of setting the interest rates on new credit in an environment where the government was not controlling loan costs.
However, the CBK is yet to approve any of the submissions from the banks, forcing them to operate as if they are still under the lending rate controls to avoid falling in legal trouble with the regulator.
“Getting approval is a nightmare. CBK has taken a more customer protection approach as opposed to the industry needs,” a bank CEO whou sought anonymity told journalists.
Banks are currently lending at no more than 4 percentage points above the Central Bank Rate (CBR) which has been lowered to 7pc, underlining the conundrum lenders find themselves in.
The CBK wants each bank to justify its formula based on factors such as the distribution of loan book to various sectors such as small and medium sized entities.
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