Different boats for different folks

CBK dictates the direction of interest rates primarily through the CBR (see this edition), a tool used to influence the demand and supply of credit. However, CBK last year allowed banks to implement 'risk-based loan pricing' which lets banks charge different rates to customers based on their risk profile.

What happened?

Last week, NCBA Bank issued a notice to customers that they were increasing their base lending rates on any floating KES & USD loans.

Between the lines

Kenya’s biggest banks collectively incurred a record jump in bad loans last year amid concerns over rising defaults due to an economic slowdown. The rising defaults could force banks to cut back on lending to the productive sectors of the economy. Higher risk implies higher rates.

Should you care?

As a borrower, this means higher loan repayment costs. It is likely that other banks will follow suit soon enough. As an investor, this is good for the bank's interest income but loan quality may be negatively impacted.