Business; New tune for the Commercial banks as it has started charging big Companies higher interest rates on loans compared to start-ups and individual borrowers.
New data from the CBK (Central Bank of Kenya) shows, pointing to higher risk perception of bigger Companies who have in the past 2 years accounted for the bulk of the spike in Non-Performing loans.
Furthermore, the CBK data on lending rates by category of borrower shows that Corporate firms paid 13.95% on average on loans of between 1 and 5 years in the month of September, up from 11.9%.
For the outlined part, small businesses, which a year ago were paying the highest average rate at 12.5%, are now being asked for 13.8% as the loan pricing seesaw in their favor.
Given the directives, Personal loans to individuals were attracting an average interest rate of 13.2% in the month of September, up from 12.1%.
On the other hand, the Central Bank of Kenya earlier this year (2022) pointed to a few large companies that it did not name as the ones responsible for rising defaults that pushed the portfolio of bad loans in the banking sector to an all-time high of KSh514 billion in the month of June, although this retreated to KSh505 billion in August 2022.
In the year 2022, they have also been affected by higher input prices as a result of supply chain disruptions arising out of the Russian war in Ukraine which started in February, and periodic Covid-19 prevention shutdowns in China, where Kenya gets most of its capital goods and Services.
Notably, higher fuel prices which have raised the cost of goods and therefore inflation locally have also negatively affected the demand for manufactured goods.
However, the Central Bank of Kenya data on interest rates do not indicate the total cost of credit, known as the annual percentage rate-APR, which includes the cost of associated charges loaded onto a loan.
Banks of Kenya have recently been allowed to start pricing in risk in their lending plans under formulas that have been approved by the CBK, pointing to higher loan rates for individuals and businesses deemed high default personals.
Also, Private sector loan rates have gone up in a line with signals from the monetary regulator which has since May raised the Central Bank Rate-CBR by 1.25% points to 8.25%, in the face of high inflation that touched a 65-month high of 9.6% in October.
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Additionally, Central Banks across the Globe, including the United States Federal Reserve and the Bank of England, have been raising their base rates as they battle runaway inflation that has hit a forty (40)-year high in the two western economies.
Finally, the rate on the one-year Treasury bill has now climbed to 10%, the highest in 3 years, while in October Treasury bond sales also saw the Central Bank of Kenya accepting bids priced above 14% after months of resisting touching this level in the monthly auctions.