Nairobi — A senior bank executive has challenged commercial banks to come up with innovative products that ensure the cost of credit remains affordable even when the Central Bank Rate goes up.
Family Bank chairman Wilfred Kiboro said banks should make better use of institutions like the Credit Reference Bureau with an aim of reducing credit related risks that make the banks maintain high rates.
Kiboro told Capital FM Business in an interview that banks risk losing income from loan interests, as more and more Kenyans continue to look for optional sources of funding.
"If all the macro-economic fundamentals are right, then the interest rates should be coming down. Eventually credit will be affordable to everyone and be able to invest and that is what will spur economic growth. So it is in the best interest of the all the banks to have a fairly low interest rate regime," said Kiboro.
He said despite many uncertainties, there was need for all financial lenders to come up with credit products that will enable many especially in the lower end market to access credit.
"Many need credit but are being forced to even sell their land to start a business. We need to deal with this if we want make profits," he added.
On his part, Equity Bank Chief Executive Officer James Mwangi said the banks need to move fast and reduce the interest rates especially after the Central Bank of Kenya (CBK) lowered its rate to 11 percent from 13 percent.
He however believes the government has to do more to reduce the effects of economic shocks that have continued to affect the financial sector.
"We are glad that CBK lowered its rate and that is an indication where Central Bank and every Kenyan expects interest rate to go. We as banks will have to follow the trend and I don't think there is another way out of this," Mwangi said.
He says the rates should now go below 15 percent from the average 19 percent.
Kenya Bankers Association Chief Executive Officer Habil Olaka said commercial banks may not necessarily depend on the move of the CBR rate to react, but the reaction of the market to lower their lending rates.
"When the CBR signal changes and start coming down, banks respond accordingly but based on the market movement; they don't respond to the CBR. Because if the CBR moves and the market does not move, the banks may not respond, "said Olaka.
Independent financial analyst Aly Khan Satchu feels that it is high time the banks focus on their customers by ensuring they don't carry the whole heavy burden of any economic shock.
"I think the banks (which have enjoyed net interest margins which are the widest anywhere in the world) are missing a trick. These margins are not sustainable and they would do better to cut rates and go for volume growth," Satchu told Capital FM Business.
He added: "They might have some expensive deposits on their books but now is the time for any bank to get ahead of the curve and start showing some respite to borrowers."
He said many international banks are eyeing the East African Region and Kenya being in the region, the local banks may face stiff competition in future.
He adds; "They might have some expensive deposits on their books but now is the time for a or any bank to get ahead of the curve and start showing some respite to borrowers who after all are the ones padding their profits."
He said many international banks are eyeing the East African Region and banks in Kenya for instance may face stiff competition in future.