(Bloomberg) -- Kenya’s central bank Governor Kamau Thugge asked lenders to slash commercial loan rates to reflect dropping borrowing costs to help stimulate the East African economy.
Commercial banks have been “sluggish” in lowering borrowing costs despite the monetary policy committee having cut its policy measure by a cumulative 175 basis points at three consecutive meetings, Thugge said at a press briefing on Friday, a day after the panel surprised with a 75-basis-point reduction to 11.25%.
In comparison, the average commercial lending rate has remained above 17%, while yields on 91-day Treasury bills have dropped to 10.45%, the governor said.
Market leader Equity Bank Kenya Ltd. last month reduced its base rate by 44 basis points after the MPC lowered by 75 basis points in October. It’s now lending at a reference rate of 17.39% plus a margin capped at 8.5%.
‘No Win’
“They need to start lowering aggressively,” Thugge said. “It’s in the interest of the banks to lower their lending rates. If they continue on this path, it’s a no win for anyone.”
Private sector credit growth showed no expansion in October, having decelerated from 13.8% at the end of last year. Thugge wants banks to resume lending to the economy whose growth is seen slowing to 5.1% this year, compared with 5.6% in 2023.
The governor said he had met with bank chief executives on the matter two weeks ago, without saying what action will be taken. Previous attempts to get commercial lenders to reduce rates to induce private credit failed.
Healthy Profits
In 2016 then President Uhuru Kenyatta introduced caps on commercial interest rates to spur access to credit. The move had the opposite effect and was repealed two years later.
Data from the central bank shows lenders have continued to make healthy income from lending to the government. Their pretax profits of 225.3 billion shillings ($1.74 billion) by October was 13% higher than a year earlier, according to the central bank.
“All we are asking is for the banks to be fair and to act in the same way they were quick to raise lending rates when the policy rate was increasing and the Treasury bill rates were increasing,” the central bank chief said.
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