This archive report was first published on 24 December 2021.
December 24, 2021 - The Central Bank of Kenya (CBK) has been at the center of a dispute between local bank chief executive officers and the International Monetary Fund (IMF). The bank CEOs have reportedly taken their grievances to the IMF, citing the CBK's refusal to allow them to increase the cost of loans.
According to the IMF, it has received protest letters from the local bank executives, who claim that the CBK has failed to approve any of their loan pricing formulas since the lifting of the interest rates cap on November 7, 2019. As a result, the banks have been forced to continue giving loans at the same rates as during the interest rates cap era.
For instance, the lending rates averaged 12.38 percent in November 2019, when the Central Bank Rate (CBR) was at 8.5 percent. In October 2021, the lending rates averaged 12.12 percent, indicating that the rates have not changed significantly since the interest rates cap was repealed.
The banks further allege that the delay in moving to risk-based lending has forced them to deepen their investment in government securities and restrict lending to high-quality customers with a lower risk of default.
“With an ample capital position and strong deposit growth, banks are positioned to extend credit to the economy to support the recovery, though they may face some headwinds. Banks’ holdings of government securities stand at a relatively high 31 percent of assets and are expected to rise further in the coming year,” the IMF said.
It is worth noting that the CBK has previously cautioned local banks against reverting to pre-interest rate cap charges that were as high as 28 percent.
