Data from the Central Bank of Kenya for August show that a group of smaller lenders are charging loan interest rates that exceed 17 per cent, well above the sector average.
The industry average for loan rates in the same month was 14.34 per cent, while Credit Bank posted the highest average at 18.69 per cent, followed by Bank of Africa Kenya at 17.45 per cent, Access Bank at 17.32 per cent, Kingdom Bank at 17.21 per cent and SBM Bank at 17.17 per cent.
To attract deposits, these banks are offering rates that range from eight to 11 per cent, with Credit Bank paying an average of 11.32 per cent, African Banking Corporation 10.84 per cent, Kingdom Bank 9.09 per cent and SBM Bank 8.85 per cent.
Larger institutions such as KCB Bank Kenya, Equity Bank Kenya and Co-operative Bank of Kenya keep loan rates close to the average and provide deposit rates between 2.88 per cent and 7.40 per cent.
KCB’s loan rate stood at 14.78 per cent with a deposit rate of 6.35 per cent; Equity charged 14.9 per cent on loans and paid 6.83 per cent on deposits; Co-op’s lending rate was 15.01 per cent against a deposit rate of 5.72 per cent.
The higher lending rates enable some smaller banks to sustain lending-deposit spreads that match or exceed those of bigger rivals, for example UBA Kenya recorded a spread of 11.40 percentage points with a loan rate of 15.81 per cent and a deposit rate of 4.41 per cent.
Access Bank’s spread measured 9.77 percentage points, Bank of Africa Kenya’s spread was 10.1 percentage points, Kingdom Bank’s spread was 8.12 percentage points and SBM Bank’s spread was 8.32 percentage points, while Credit Bank’s spread narrowed to 7.37 percentage points thanks to its high deposit rate.
The need to offer attractive deposit returns raises funding costs for smaller lenders, which have fewer large corporate accounts and smaller customer bases, whereas larger banks draw on more diversified and stable sources such as corporate and institutional deposits.
Overall, the easing of credit costs is not being experienced uniformly across the banking sector, even though the Central Bank of Kenya left the Central Bank Rate at 8.75 per cent after lowering it from nine per cent in February.
The Kenya Bankers Association has urged the Monetary Policy Committee to keep the rate unchanged, stating that stable inflation, exchange rates and continued private-sector credit growth support maintaining the current stance.
The average lending-deposit spread fell slightly to 7.43 percentage points in August from 7.46 percentage points in July, a change that conceals the broader variation among individual banks.
