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Banks lower interest paid on loans, should Saccos follow suite

1 min read
CBK cut its benchmark lending rate last month to 7.25% to cushion the economy from the impact of Coronavirus.

Banks interest rate paid on loans has been lowered for the first time since 2005, thanks to the Central Bank of Kenya (CBK ) benchmark lending rate.

Data from CBK shows that lending rates averaged 12.19 percent in February, the lowest since January 2005.

The country scrapped the interest cap on commercial lending rates late last year, a move that sparked fears among borrowers, to the likely return of high lending rates, which had at one point hit 25 percent.

NCBA managing director John Gachora said that,“Banks have been clear that they were not asking for rate cap removal in order to raise rates. We said we would discipline ourselves and the data speaks to that.”

“There is also the question of demand in the sense that we haven’t seen a huge growth in new lending and so the old lending which was pegged on CBR continues with the original pricing, meaning a cut in CBR (Central Bank Rate) also reduces overall pricing,” he adds.

CBK cut its benchmark lending rate last month to 7.25% to cushion the economy from the impact of Coronavirus.

It also lowered the cash reserve ratio for commercial banks from 5.25 percent to 4.25 percent.

This move calls upon all financial service providers, especially Savings and Credit Cooperative Societies to cut the lending costs.

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