9 July 2014

Kenya: Now Banks Forced to Disclose Loan Charges

The Central Bank yesterday fixed the inaugural reference interest rate on commercial bank loans at 9.13 per cent for the next six months to January.

This means the 43 lenders will for the next six months have to disclose charges above that rate to the borrower. The rate was arrived at yesterday by the CBK's monetary policy committee during their meeting held after every two months.

This was after the committee retained the CBK's key lending rate at 8.5 per cent, a level it has maintained for the last 15 months since April 2013. In a statement, CBK governor Njuguna Ndung'u said the new reference rate was an average of the CBR and the 9.76 per cent moving average of the weighted 91 treasury bill rate over the last two months.

"This level of the KBRR (Kenya Bank's Reference Rate) will be effective from July 8, 2014 until its next review in January 2015," Ndung'u said, adding that only drastic changes of macroeconomic fundamentals could dictate otherwise.

The actual cost of loans for new borrowers will however be dependent on the premiums charged by individual banks based on their operation costs.

The overheads will be disclosed under annual percentage rate pricing mechanism that became effective this month. Treasury Secretary Henry Rotich said the actual interest rates will be determined by market forces as shaped by key macroeconomic fundamentals including inflation and exchange rates.

"We have come up with a reference rate to act as a basis for determining interest rates because every bank previously had own benchmark, some of which were unfounded," said Rotich.

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