Co-operative Bank of Kenya has cut its base lending rate by two percentage points to 14.5 percent, marking its first major reduction in the price of loans since the Central Bank Rate (CBR) started coming down in August last year.
The Nairobi Securities Exchange-listed lender announced Monday morning that it has cut its base rate from 16.5 percent, with the reduction taking effect immediately.
Co-op Bank Managing Director Gideon Muriuki said in a statement that the loans will now be priced at the 14.5 percent base rate plus a margin of up to four percent per year based on each customer’s credit profile. The bank’s loan book stood at Sh381.3 billion at the end of September last year.
“The reduction in lending rates is intended to stimulate credit growth to key sectors of the economy, notably the micro, small and medium–sized enterprises that are a critical engine to drive and sustain economic growth,” Mr Muriuki said.
Co-op Bank becomes the first major lender to announce such a cut in the cost of loans, coming after the Central Bank of Kenya (CBK) lowered the CBR to 10.75 percent from 11.25 percent on Wednesday last week and warned of penalties for lenders that would not reduce the price of credit.
The lender’s move looks set to reduce its average interest rates, which had hit 16.9 percent in December last year compared with 15.14 percent in August when CBK started lowering the CBR.
CBK has been lowering CBR in an environment where inflation is below the mid-point of the targeted band of 2.5 percent and 7.5 percent and the shilling remains relatively stable against the dollar, having gained by close to a fifth last year.
However, banks have been reluctant to cut lending rates, arguing that they had locked in expensive deposits. Data from CBK showed average lending rates had continued to rise, hitting an eight-year high of 17.22 percent in November before falling marginally to 16.89 percent in December last year on regulator’s summons.
Last week’s CBR cut marked the fourth consecutive reduction in a span of seven months, lowering the benchmark rate by a cumulative 2.25 percentage points from a 22-year high of 13 percent that lasted between February and August last year.
The CBK accompanied the CBR reduction with a one percentage point cut in the cash reserve ratio to 3.25 percent in bid to pull private sector credit growth from the 1.4 percent contraction that was witnessed in December last year.
CBK governor Kamau Thugge said last week his team is now conducting on-site inspection of banks to ascertain that they are reducing their interest rates in line with their risk-based credit pricing models.
“Any bank that has not passed on the benefits of reduced cost of funds to reduce lending rates will be penalised in accordance with the law,” said Dr Thugge in last week’s monetary policy committee statement.
At the end of December last year, just four lenders—Citibank NA Kenya, Standard Chartered Bank Kenya, Victoria Commercial Bank and Stanbic Bank Kenya—had cut their rates by at least 1.75 percentage points, which is the cumulative cut in CBR that the CBK had made between August 6 and December 5.
