Nearly half of licensed commercial banks or 17 out of 38 lenders failed to cut interest rates in October amid pressure from the Central Bank of Kenya (CBK) and the Treasury to lower the borrowing costs.
The weighted overall average lending rate for all 38 commercial banks however eased slightly to 16.87 percent from 16.9 percent in September, according to the new CBK data published on Friday.
The sticky commercial bank borrowing costs were against CBK’s jumbo interest rate cut at the start of October, which moved the benchmark interest rate to 12 percent from 12.75 percent previously.
KCB Bank Kenya, I&M Bank and Co-operative Bank of Kenya were among top banks who raised their average lending rates in the month along with Access Bank Kenya, Kingdom Bank and Bank of Africa.
Eighteen other commercial banks cut their average weighted lending rates slightly in October while borrowing costs by three banks were unchanged.
Top banks to trim interest rates in October included Standard Chartered Bank Kenya, Stanbic Bank Kenya, NCBA Bank Kenya, Equity Bank Kenya and Absa Bank Kenya.
Premier Bank Kenya, Diamond Trust Bank Kenya and Commercial International Bank (CIB) Kenya, meanwhile, left their weighted average lending rate unchanged from September.
CBK Governor Kamau Thugge demanded that banks cut interest rates following the apex bank signalling of lower borrowing costs while further summoning banking executives over the stay of high interest rates.
Kenya Bankers Association, the banking sector lobby, has pointed to hurdles barring a faster decline in lending rates, including relatively high returns from government securities and increased non-performing loans.
Average commercial bank interest rates had increased in September from August, despite the CBK commencing rate cuts at the start of August on low inflation and the end of exchange rate volatility.
The banking regulator has cut the benchmark lending rate twice in the last three months, moving the key rate from a high of 13 percent, first to 12.75 percent in August and further to 12 percent in October.
Kenya Bankers Association acting chief executive Raimond Molenje says CBK began discussions with bank executives a fortnight ago with the agenda pegged on aiding the recovery of private sector credit.
“The discussions with CBK are ongoing, focused on how the banking sector can enhance its support to individuals and businesses to realise a productive economy, especially through increased credit flow to the private sector while progressively transmitting the monetary policy to the customers,” he said.
Private sector credit growth collapsed to a 22-year low of 0.4 percent in September and to near zero in October, mirroring the hit on demand from high interest rates and soaring non-performing loans.
Commercial banks have disclosed further cuts to interest rates in November setting the premise for lower loan costs in the run-up to the close of 2024.
Last week, Equity Bank Kenya lowered its reference rate (internal base lending rate) for shilling-denominated loans to 17.39 percent from 17.83 percent, setting its highest borrowing cost at 25.89 percent for its riskiest customers.
The Development Bank of Kenya (DBK) meanwhile cut its base lending rate from 15.1 percent to 14.9 percent while M-Oriental Bank Limited shaved its base lending rate to 16.5 percent from 17 percent effective October 20.
Adjustments to the CBK benchmark usually signal the direction of domestic interest rates with a cut pre-emptive of lower commercial bank borrowing costs.
Banks expect CBK to pronounce a second jumbo rate cut next week to anchor the direction of interest rates lower.
“We look forward to more easing of the monetary policy by the MPC on December 5 to assist in the progressive reduction in lending rates as has been recently seen in the interest rate reduction communication by various banks,” added Mr Molenje.
“The macroeconomic factors depict progressive reduction in lending rates on the basis of individual bank’s risk-based credit pricing model as approved by CBK. However, delayed government payments continue to elevate banks' NPLs and this has not eased in October.”
CBK’s Thursday policy meeting is expected to be staged in the backdrop of inflation falling below the five percent midpoint at 2.8 percent in November while the Kenya shilling has continued to trade in a narrow range despite pressure from renewed dollar strength.
