Banks yield to pressure, lower interest rates

Commercial banks are beginning to yield to the public pressure to lower interest rates on loans.

Three banks on Friday announced that they will be lowering the interest rates on loans by up to one percent, despite the move by the Kenya Bankers Association (KBA) to offer seven point plan to lower the cost of credit.

The National Bank will effect its move on the 1^st of September lowering its interest rate by one percent on all Kenya shillings denominated loans.

The Bank of Baroda and Family Bank have announced they will lower the cost of credit by 0.97 percent from the 25^th of August.

The three banks say the move is in line with the central Bank of Kenya’s (CBK) move to slush the Kenya Banks Reference rate to 8.9 percent during the monetary policy committee meeting held last months.

Banks are under pressure to lower interest rates as accusations of operating cartel like practices to keep interest rates high.

Late last month, members of parliament approved a bill limiting commercial lending rates at four percent above the central bank’s benchmark rate.

KBA, an umbrella body of lenders, had agreed to cut their lending rates by a 100 basis points as they seek to stave off a political plan to cap the interest rates through legislation.

The bankers lobby group said that lowering of interest rates will force them to stop lending to high-risk borrowers.

Members of Parliament led by Kiambu MP Jude Njomo however termed the proposals by banks as dishonest.