Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.


Kenya’s Biggest Bank Faults State Borrowing for High Rates

26 August 2016, 15:54

Nairobi - Kenya’s biggest bank said the government can do more to help reduce high lending rates by being clearer about its borrowing plans, after President Uhuru Kenyatta signed into law a bill capping the cost of loans.

Poor planning by state departments means the state often rushes to the market to raise financing when its coffers are already empty, pushing up yields on Treasury bills, one of the key determinants of interest rates, KCB Group Ltd. Chief Executive Officer Joshua Oigara said. Kenyatta on Wednesday approved legislation capping rates and setting minimum payments on deposits, saying he sympathized with Kenyans frustrated by the cost of credit and poor savings rates.

“The government needs to do more in terms of being predictable on their coming to market,” Oigara, 40, said in an interview on Thursday at his office in the capital, Nairobi.

The law signed by Kenyatta, a quarter of a century after the country eliminated interest-rate limits, requires lenders to peg credit costs at 400 basis points above the benchmark central bank rate. The law also compels financial institutions to pay interest of a minimum of 70 percent of the so-called CBR on deposits. Treasury Secretary Henry Rotich said last week that lenders make “too much” from interest charges.

Wide Spreads

Banks extended loans at a weighted average of 18 percent in June, according to the most recent statistics from the central bank. That compares with a benchmark Central Bank Rate of 10.5 percent and a Kenya Banks’ Reference Rate, used as a base lending rate by the industry, of 8.9 percent.

Yields on 182-day T-bills rose 16 basis points to 11.18 percent at an auction on Wednesday after surging to a record 22.3 percent in October as the government sought to plug gaps in its budget.

“The government is being too big a big borrower and they have really been driving interest rates,” Aly Khan Satchu, the chief executive officer of Rich Management, a Nairobi-based adviser to companies and wealthy individuals, said in a phone interview. “In October last year, what set the interest rates was that the government came in and borrowed 1-year money at more than 20 percent and repriced the entire curve and we are dealing with the aftermath of that.”

Kenyan banks hold 55 percent of the government’s 1.8 trillion-shilling ($17.8 million) of debt, according to central bank data.

High Returns

Kenyatta, who will seek a second term in elections next year, said in a statement that despite having one of the most efficient financial markets, the country has one of the highest returns-on-equity in Africa. KCB had a return on equity of 25 percent in 2015, while Equity Group Holdings Ltd., the nation’s largest bank by market value, had an ROE of 25.46 percent, compared with average ratios of 19.4 for South African lenders, according to data compiled by Bloomberg.

“I do acknowledge that interest rates must come down,” Oigara said. “But this has to be done in a progressive manner taking into account all the elements that contribute towards high interest rates so that it is a sustainable solution.”

KCB’s shares plunged 9.9 percent on Thursday, the biggest decline in 13 years, to 29.50 shillings, the lowest level in almost four years. Oigara said the drop was “an over-reaction.”

“I would say that’s a very extreme reaction largely by international investors, they are very nervous,” he said. Those nerves might be calmed once the central bank provides clarification next week on how the new law will be implemented, Oigara said.

- Bloomberg


Read more from our Users

Submitted by
Wilson Ochieng
DP Ruto accuses Raila of selling ...

DP Wiliam Ruto has castigated Raila Odinga for seeking western support to fund his 2017 election bid. Read more...

Submitted by
William Korir
Peter Kenneth announces Uhuru 201...

Peter Kenneth has announced that he will support President Uhuru Kenyatta in the 2017 elections. Read more...

Submitted by
Wilon Ochieng
Labour Party to dump both Jubilee...

The Labour Party of Kenya is likely to avoid supportoing both the CORD and Jubilee factions during the 2017 General Elections. Read more...

Submitted by
William Korir
Ukambani MP quits Jubilee, to run...

An Ukambani MP has quit the Jubilee Party, citing voter apathy as his reason behind leaving the ruling coalition. Read more...

Submitted by
Victor Tinto
Government launches probe into Po...

The government has launched an inquiry into the circumstances that could have led to two National Police Service helicopter accidents in August and September this year. Read more...

Submitted by
Wilwon Ochieng
Deputy Governor's ally found with...

The EACC has recovered KES 2 million in fake currency from a close ally of Deputy Governor for Tharaka Nithi Eliud Mati. Read more...