The Central Bank of Kenya, the republic’s finance regulator, has been lowering the lending rate. This has led to a consistent fall in lending rates to an 11.75% average in September.
Notably, CBK has lowered the benchmark rate to 7% from 9% last November. The regulator has observed the country’s economic performance is below its average potential. This is due to the effects of the covid 19 pandemic on the economy.
Since the regulator started disclosing the lending rates back in 1991, this is the special lowest lending rate. Notably, the current low lending rate matches the World Bank’s annual borrowing costs recorded four decades ago in 1980.
The leading banks in Kenya, such as Equity Bank and KCB Bank, are projecting frequent loan restructuring requests for at least three years.
Covid 19 pandemic has caused economic disruptions and crises; hence the lenders will continue loan restructuring and lower credit costs. Also, the lenders will be careful not to extend loans to high-risk borrowers with a high probability of default.
CBK removed the interest rate cap late last year, and there was fear of an increase in credit costs. However, the noticeable drop in the average lending rates has significantly reduced the anxiety. The interest rate caps had helped lower the borrowing cost, which had hit a 25% high.