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NCBA joins equity in raising interest rate loans
Friday 07 July 2023
NCBA Bank along Mama Ngina Street. photo | Abel Evans | NMG
NCBA Group has become the second bank after Equity Bank to increase the cost of loans in the wake of the new benchmark lending rate announced by the Central Bank of Kenya (CBK), causing consumers to pay higher loan installments from next week.
The lender said the loans will attract an interest rate of 13 percent from August 7, up from the current 10.5 percent.
The Central Bank of Kuwait on June 26 raised the central bank interest rate from 9.5 percent to 10.5 percent — the highest point in nearly seven years, paving the way for a review of the cost of their loan facilities.
Equity Bank was the first bank to adjust loan rates after the Central Bank of Kuwait revised its benchmark lending rate. Equity Bank has informed customers that interest rates will jump to 14.69 percent from Monday, July 10, up from 12.5 percent in January.
“In light of the recent increase in the interest rate of the Central Bank of Kenya, we would like to inform you that we will adjust the base lending rate for the Kenyan shilling to 13 percent per annum from August 7,” the NCBA Group said in notices to its clients.
NCBA Group’s loan book in the Kenyan market was Sh249.8 billion in the fiscal year ended December, up 13.5 percent from Sh220.01 billion a year earlier.
This is the second time the NCBA has adjusted interest rates in three months. The bank raised dollar lending rates and shilling-denominated loans to 12 percent and 10.5 percent, respectively, from May 29.
Other lenders are set to follow NCBA Group and Equity in revising the cost of loans upwards, paving the way for borrowers to pay more in monthly interest rates.
Lenders are turning to a system of risk-based pricing whereby different consumers are charged different interest rates based on the assessed risk that consumers will fail to repay their loans.
The interest rate increases come as banks grapple with rising loan defaults and borrowers facing economic struggles.
Borrowers hit banks with an additional Sh82.9 billion in loan defaults in just four months of the year, indicating economic hardship that has seen the proportion of non-performing loans rise to a 16-year high.
Central Bank of Kuwait data shows that the non-performing loan ratio – the percentage of loans whose interest or principal has not been received for at least three months – amounted to 14.9% in May, compared to 13.3% in December of last year.