logo image

The Cheapest and Most Expensive Banks in Kenya As Per CBK

Finance
feauture image

In a recent regulatory disclosure by the Central Bank of Kenya (CBK), small lenders such as First Community Bank (FCB), Ecobank Kenya, and HF Bank emerged as top contenders offering lower interest rates. Meanwhile, larger banks like Absa and Equity Group were listed among those with the highest rates.

Interest Rates Overview

The CBK's data on average lending rates for commercial banks reveals that 27 of the 39 banks raised their rates in the three months leading up to March. The lowest rate was offered by FCB at 9 percent, while Credit Bank had the highest at 17.6 percent. This is a significant increase from December, where the highest rate was 14.6 percent by Sidian Bank.

Banks with the Lowest Rates

  • First Community Bank (FCB): A shariah-compliant lender, FCB offers a uniform rate of 9 percent for personal, business, and corporate loans.
  • Ecobank Kenya: Follows closely with an average rate of 10.7 percent.
  • HF Bank: Offers an average rate of 11 percent.
  • Access Bank Kenya: Provides an average rate of 11.2 percent.

Banks with the Highest Rates

  • Credit Bank: Leads with an average loan rate of 17.6 percent.
  • Middle East Bank: Follows with a rate of 16 percent.
  • Sidian Bank: Offers a rate of 14.9 percent.
  • Absa: Ranked sixth with an average rate of 14.2 percent.
  • Equity Bank Kenya: Ranked seventh with an average rate of 14.1 percent.

Additional Costs

The CBK data does not account for additional costs such as negotiation fees, legal fees, and insurance, which can increase the effective cost of loans. Banks usually disclose a breakdown of these fees on a website developed by the Kenya Bankers Association (KBA) and the CBK for transparency.

Risk-Based Pricing Models

  • Absa: Plans to adopt a risk-based pricing model for loans in the second half of the year after receiving CBK's approval last year.
  • Equity Bank Kenya: Started implementing risk-based pricing, reviewing lending rates between 12.5 percent and 21.02 percent due to rising benchmark rates.

Economic Factors

In March, the CBK raised its benchmark lending rate to 9.5 percent from 8.75 percent to combat inflation, leading to more expensive loans. This measure aimed to curb credit demand and reduce inflation, which dropped from 9.2 percent in March to 7.9 percent in April. However, inflation has consistently remained above the government's target upper limit of 7.5 percent for 11 consecutive months.

Current Trends and Predictions

With more than 25 commercial banks adopting risk-based pricing, interest rates are expected to rise further this year. KCB Group, pending approval, aims to price loans based on risk levels for KCB Kenya and National Bank of Kenya (NBK).

Average Lending Rates Among Major Banks

  • KCB Group: Averaged 12.3 percent by the end of March, similar to Standard Chartered Bank of Kenya.
  • Co-op Bank, NBK, Prime Bank: Averaged 12.9 percent.
  • NCBA, I&M Bank: Averaged 13.6 percent.

The higher cost of credit among big banks is attributed to their extensive distribution networks, multiple services, and established brands. Conversely, smaller banks attract customers by offering lower credit costs, a shift from previous years when small banks had the highest credit costs due to expensive wholesale deposits.

Conclusion

The CBK’s latest data highlights the varying interest rates across banks in Kenya, with smaller banks generally offering lower rates compared to their larger counterparts. This competitive landscape continues to evolve as banks adopt risk-based pricing models in response to economic pressures and regulatory changes.