Nairobi — Commercial banks in Kenya have begun implementing the pilot Annual Percentage Rate (APR) pricing mechanism, which will enable consumers to compare different bank loan costs based on standardised parameters and a common computation model.
The Kenya Bankers Association said institutions were modifying their systems and loan application procedures in readiness for the industry's adoption of the APR disclosure requirement.
Kenya Bankers Association Chief Executive Officer Habil Olaka said the APR system will stimulate competitive loan interest rates and promote consumer protection by standardising disclosures during the loan application process.
"As an industry, we are enhancing pricing disclosures in order to enable bank customers to make more informed choices. This is one of the mechanisms embraced by banks to address issues relating to easing access to credit," said Olaka.
Currently, banks are required to provide loan applicants with a breakdown of the Total Cost of Credit that include bank charges and third-party costs associated with the loan facility and a Loan Repayment Schedule in line with the Central Bank Prudential Guidelines.
When the APR takes effect on July 1, banks will disclose the total costs associated with the loan; the loan repayment schedule; and the APR, which takes into account the interest rate component; bank charges and fees; and third party costs, including legal fees, insurance costs, valuation fees, and government levies.