Monday, April 14, 2008

CBK seeks to expose hidden cost of credit

From the Eastafrican Standard.

By James Anyanzwa

Central Bank of Kenya will soon demand that banks provide customers with an annual percentage rate (APR), a measure expected to lower the costs of consumer credit, a senior bank official has said.

The facility, which is an all-inclusive measure of the cost of credit, is expected to lower bank charges, which have locked out a substantial portion of the population from accessing credit.

"We are indeed working with the Kenya Bankers Association and the Financial Sector Deepening Trust (FSD) to explore the modalities of introducing an ‘Annual Percentage Rate’ measure of credit in Kenya," Ms Rose Detho, CBK’s Director Bank Supervision, told a news conference during the launch of a survey on bank charges and lending rates at the bank’s offices in Nairobi, yesterday.

Detho said some countries have already adopted the instrument as a measure of the cost of credit.

"We are consulting with stakeholders. We expect to undertake a study on APR, which will be completed in the second half of this year," said Detho.

Meanwhile, the costs of opening and running a current account have dropped 12 per cent, setting a stage for increased access to banking services, according to findings of CBK latest study on Bank Charges and Lending Rates.

The findings, unveiled yesterday, indicate a sharp decline in the average cost of operating a current account by 12 per cent for the nine-month period between March and December, last year.

However, the costs (excluding additional charges) charged by a group of 20 banks to obtain a loan of Sh50, 000 repayable every month over a period of two years rose slightly by 0.5 percentage points to 16 per cent over a similar period.

In the higher end segment of the credit market, interest rate on a loan of 500,000 repayable over a three-year period fell 0.01 percentage points to 15.79 per cent, according to figures of a group of 25 commercial banks.

"From reading of the survey, majority of banks have reduced the costs of offering services due to competition," said Detho.

The CBK’s report on the update of the Survey on Bank Charges and Lending Rates was launched in August, last year.

According to the survey, Co-operative and Victoria Commercial banks offer the cheapest rates in the lower end of the credit market segment, providing loans to the tune of 50,000 loan. The two banks both charge a rate of 13.5 per cent.

Dubai Bank and Stanbic Bank Kenya Ltd stand to be the most expensive in this segment, charging a massive 20 per cent and 20.75 per cent respectively on a similar amount of loan.

"Most banks are now providing loans in the 50,000 category. There is a significant reduction in loan charges," said Ms Caroline Pulver, Project Manager at FSD.

In the higher end segment of the market, Equatorial Bank is the least expensive charging a rate of eight per cent on a loan of 500,000 paid monthly over three years.

Dubai Bank and Stanbic Bank Kenya are also the most expensive banks in this category charging 20 per cent and 21.75 per cent respectively on similar amounts.

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