Bank Loan Interest Rates to Cross 20% From August 2023

If you have an existing loan at a bank or are planning on taking one from August 2023, you may have to contend with higher interest rates as commercial banks begin repricing their loans in line with the Central Bank of Kenya’s (CBK) base lending rate.

In the latest pricing cycle, customers deemed to be the riskiest may have to pay annual interest rates higher than 20% following the increase in the Central Bank Rate (CBR) from 9.5% to 10.5% on June 26. 

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Already, some top banks have been informing their customers of loan price changes - to be effected July through August - that affect existing loans and new credit facilities. 

The CBR is the lowest rate of interest that the Central Bank charges on loans to banks. Lenders add a margin to this rate when giving loans to customers - the difference which becomes revenue to banks.

In this review cycle, lenders are applying a margin of about 6% to the CBR meaning customers may have to pay in the upwards of 18% from next month.

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Sample Bank Interest Rate Changes 

Equity Bank on July 6, informed its customers that it would be increasing its lending rate to 14.69% in response to the CBR hike. This represents an increase of over 2 percentage points from the 12.5% that borrowers were being charged in January. 

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Loans to Equity Bank customers will now attract a 14.69% interest rate plus a margin based on each individuals’ risk profile. 

This means some customers could end up paying as high as 20.19% depending on where one falls on the bank’s risk-based loan pricing model that was the first to be approved by the CBK back in March 2022.

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By June this year, the risk-based loan pricing models of 33 out of the 39 commercial banks in Kenya had been approved by the CBK.

Standard Chartered Bank customers will start paying interests as high as 16.5% from August 5, 2023 after the bank increased its base rate from 10% to 10.5%.

Effective August 7, 2023, NCBA will start charging a base rate of 13% in response to the CBR adjustment. The lender informed its customers earlier this month. 

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It will be a 1% increase in the base rate for Absa Bank Kenya customers starting this week.

Analysts predict a further increase in interest rates on bank loans as more lenders move to fully implement their risk-based loan pricing models.