The National Treasury, through the Quarterly Economic and Budgetary Review, indicated that commercial banks increased loan interests, spelling tough economic times for Kenyans.
According to the report for the period ending September 30, local banks had an average lending rate of 13.8 per cent. This was a significant increase from August 2022, when the lending rate stood at 12.4 per cent.
With the rates rising, Kenyans will now have to service their loans with expensive interest or dig deeper to access new credit facilities.
Already, the Treasury warned that loan defaults in Kenya hit a record high due to tough economic times. According to CBK, the ratio of gross non-performing loans stood at 15 per cent in August 2023.
The default translated to Ksh596 billion compared to August 2022, which was an 18-year high.
Higher costs for accessing loans were attributed to the tightening of the monetary policy stance by the Central Bank of Kenya (CBK) to counter inflation and changes to the sovereign and exchange rate risks.
Monetary policies are decisions undertaken by CBK to ensure that the supply of money in the economy is consistent with growth and price objectives set by the government.
“Monetary policy stance remains tight to anchor inflation expectations due to the sustained inflationary pressures,” the report indicated.
According to the report, Central Bank Rate (CBR) has remained constant through the months of August to October at 10.5 per cent.
The Treasury indicated that the rate was not revised since an earlier tightening of the monetary policy was still transmitting in the economy.
“Reflecting the tight monetary policy stance and liquidity conditions in the money market, the short-term interest rates increased in the year to September 2023,” the report explained further.
Financial experts warn that the lending rates may rise in early 2024 as banks reprice the cost of loans under the risk-based pricing regime. Here banks offer divergent interest rates and loan terms to different consumers based on their creditworthiness.
