Thursday, October 16, 2008


Survey finds fixed rate loans more expensive

Written by Washington Gikunju

Banks that charge interest on loans based on a flat rate calculation method are levying customers substantially higher interest charges than those that use the reducing balance basis, a survey by Central Bank (CBK) has revealed.Releasing the CBK survey on banking charges and lending rates for 2008, the Central Bank director in charge of bank supervision, Ms Rose Detho said on Wednesday that customers should avoid banks that charge interest at flat rates. Alternatively, Ms Detho said such borrowers could negotiate for more favourable terms with their lenders.While acknowledging that some banks could be offering value addition , Ms Detho said the survey was to empower customers by revealing fees and interest rate charges levied by banks. “The objective is to promote transparency and market discipline by giving additional information to customers,” she said. K-Rep Bank is the most expensive lender, with a flat interest rate charge of 18 per cent and additional charges of Sh1,000 and Sh10,000 on Sh50,000 two-year loan and Sh500,000 three-year unsecured loans respectively. A borrower who takes out a two-year Sh50,000 loan from K-Rep Bank ends up paying back Sh69,000, while a borrower who takes out a Sh500,000 three-year loan from the same bank ends up paying interest and additional charges of Sh280,000 on the loan.Family, Equity, Barclays and Imperial Banks also charge interest on a flat rate basis, with a borrower of a two-year Sh50,000 loan ending up re-paying a total of Sh67,500, Sh66,500, Sh66,008 and Sh64,492 respectively in interest and additional charges.This is the third CBK, Financial Sector Deepening (FSD) survey on bank charges and lending rates, which is based on information collected from bankers. The survey was conducted by Research International.FSD Kenya representative Caroline Pulver, said there has been a notable reduction in some of the banking charges since the launch of the survey last year.Victoria, Co-operative and Consolidated banks are the cheapest lenders

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