The Central Bank of Kenya's Governor, Kamau Thugge, has cautioned Kenyans with poor credit histories that they risk paying higher interest rates on loans under the revised risk-based credit pricing model.
Speaking on Tuesday, September 2, during an interview with Citizen TV, Thugge noted that the new loan pricing model was not meant to lock anyone out but to streamline the banking sector.
"If you are a very risky customer and you don't pay your loans on time, it is not that you are prevented from accessing credit; the credit would be there, but the price will be high," Thugge said.
The CBK Governor stated that the new credit pricing model would help lower interest rates on loans and improve competitiveness among commercial banks in the country.
According to Thugge, banks will now have the chance to assess a customer's borrowing risk profile using the base rate standardised for all banks, compared to the previous model, where banks determined their own lending rate.
In contrast to the current loan pricing model, Thugge stated that the previous model, which was based on the Central Bank Rate (CBR), was skewed to the banks’ advantage.
"With the new framework, we will be able to look and see where it makes sense from the qualitative and quantitative point of view so that it is not used to raise rates without a proper foundation," Thugge said.
"Previously, when the rates would go up, the commercial banks would immediately raise their rates. When the time came to stimulate the economy by reducing the rate, we saw some reluctance by the banks to lower their rates," he added.
Thugge's sentiments come hardly a week after the Central Bank revealed that beginning September 1, this year, all new variable rate loans would be priced under the revised risk-based credit pricing model.
On the flip side, the regulator stated that existing variable-rate loans would shift to the new system beginning February 28 next year, after a six-month transition period.
The CBK clarified that the move was part of ongoing efforts to strengthen monetary policy transmission by enhancing transparency in lending.
The regulator added that the decision would also help promote responsible lending by aligning credit pricing with borrowers' risk profiles.
