Borrowers to pay more as banks increase rates

Three commercial banks have increased their lending rates, as interest on loans hit a 10-year high.

This is the second wave of interest rate increases within the banking sector, with a similar one having taken place in July. The increase means borrowers will have to pay more, a move that is expected to put pressure on consumers who are already faced with escalating commodities prices.

Standard Chartered Bank Kenya raised its rate to 16.5 per cent from 15.5 per cent, while Development Bank and Victoria Commercial Bank adjusted their rates to 16 per cent.

The banks are citing the rising Treasury bill rates as the main driver for the reviews, which take effect on Saturday. The benchmark 91-day Treasury bill is currently priced at 13.74 per cent in interest rate, the highest in the last one decade — up from 2.41 per cent investors were earning in January.

Early this week, Bank of India increased its minimum interest charge on loans to 14.75 percent from 13.5 per cent. High interest will affect both new and old borrowers since most loans carry variable terms that allow bankers to raise interest on old loans in line with dynamics of the money markets.

This may discourage borrowing by firms and individuals, who want to expand their businesses. The latest move by the three banks further complicates the country’s economic growth momentum that is already being weighed down by a combination of a weakening shilling, expensive imports and skyrocketing cost of living.

Government data released on Thursday shows the second quarter economic growth slowed to 4.1 per cent compared to the 4.6 per cent reported in a similar period last year, as inflation shoots up to 17.32 per cent.

Last week, I&M Bank also raised it lending rate to 15.75 per cent in response to the volatility in the money markets.(NMG)


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