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High interest rates temporary, KBA CEO says

29 October 2015, 12:58 Dennis Omido

Nairobi - Kenya Bankers Association (KBA) Chief Executive Officer, Habil Olaka has defended banks over increased lending rates, saying they are temporary.

Speaking in Nairobi Wednesday, Olaka said banks look at a lot of factors before they determine the lending rates.

“One of the factors that determine this is the cost of deposits. Central Bank of Kenya lending rates went up by 3 percent, as a policy response. Treasury bills rates have also increased drastically, giving a clear indication of the upward shift in the cost of deposits in the market,” Olaka said.

According to Olaka, banks are picking expensive money to lend and that is why they are passing the same to borrowers, but they have not transferred the whole cost.

Read Also: Kenya seeks review of IMF standby loan facility

“Even though the cost of funding has gone up, the whole increase has not been transferred to the lending side because they see this as a temporary movement in the market,” Olaka said.

The banks raised their rates in response to CBK’s move to increase its benchmark rate in a bid to tame the weakening shilling against the US dollar.

Two months ago, the lending rates stood at 15 percent but some banks have now raised it to 28 percent.

On Tuesday, Treasury Cabinet Secretary Henry Rotich termed the rates as unacceptable.

He said they are working on measures to lower down interest rates as soon as possible.

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