CBA makes U-turn on KBRR loan pricing

The Commercial Bank of Africa (CBA) has revised its earlier decision to price interest rates on loans on the Kenya Banks Reference Rate (KBRR) a day after the Central Bank of Kenya (CBK) issued new guidelines.

According to the Central bank all loans will be priced on the central bank rate (CBR) putting an end to the long debate as to which base rate to price loans.

CBA last week become the first bank to announce that it would be pricing loans based on the KBRR, indicating its loans would attract an interest of 12.9 percent.

At the time the bank argued that the KBRR was the more effective toll to calculate the cost of credit as the CBR is prone to change based on external factors.

But in a notice to customers CBA Group Managing Director Isaac Awuondo said the bank would stick to the guidelines issued by the banking regulator.

“Based on this clarification from CBK, our maximum interest rate for credit facilities in local currency will be at 14.5 percent p.a (CBR+4) and the minimum interest rate for local currency interest bearing deposits will be 7.35 percent effective 14^th September 2016,” Mr Awuondo said.

KBRR is calculated as an average of the CBR and the two-month weighted moving average of the 91-day Treasury bill rate and is reviewed by the monetary policy committee every six months.

Most industry observers hold that the Kenya Banks’ Reference Rate, a product developed by the regulator and banks, is more effective in pricing interest rates.

In a CBK circular issued in 2014, the regulator said “All banks and mortgage finance companies will price their flexible rate loans using KBRR as the base rate. The interest rate they charge their customers will be KBRR+K.”

The bank maintained the rates would apply to existing and new loans taken out by borrowers.