Kenya banks' lending rates hit a 65-month high of 13.5%; What does it mean?

The average lending rate offered by commercial banks in Kenya has surged to its highest level in 65 months, reaching 13.5 percent as of July.

This increase reflects the combined impact of rising interest rates on borrowers.

Factors contributing to this surge include runaway inflation, a higher Central Bank Rate (CBR), and the adoption of risk-based loan pricing strategies by banks.

The inflationary pressures over the past year have led banks to seek higher returns on their lending activities.

Additionally, the Central Bank of Kenya (CBK) has raised its benchmark lending rate by a cumulative three percent since July of the previous year.

Interest rates on income-yielding assets, such as savings and fixed deposits, have also risen to 3.97 percent and 8.1 percent, respectively, as of July.

Meanwhile, yields on government securities, often considered risk-free assets, have reached multi-year highs, with the return on the 364-day Treasury bill exceeding 14.72 percent as of last week.

The higher lending rates are likely to dampen demand for credit in the private sector, as some potential borrowers may find the cost of funds prohibitive.

Furthermore, the rising interest rates could increase the number of non-performing loans (NPLs).

Despite these challenges, private sector credit growth remains robust, standing at 12.1 percent in July. Strong credit expansion has been observed in sectors like manufacturing, transport and communication, trade, and consumer durables.

Meta Description: Commercial bank lending rates in Kenya have surged to a 65-month high of 13.5 percent due to rising inflation, increased Central Bank Rate, and risk-based loan pricing by banks, impacting borrowers and credit demand.

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Collins Ogutu

Nairobi based Digital Journalist, Corporate Communication Expert and Digital Marketer with a wealth of experience in multimedia. Accredited member of the Media Council of Kenya.

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