First Community is the cheapest lender in the country, raising queries on the loan pricing of large banks that enjoy economies of scale and price transparency.
New data from the Central Bank of Kenya shows First Community is lending at an average 11.7 per cent compared to the industry’s 17.8 per cent average.
The interest rate offered by the small Islamic bank is lower than that of saccos and nearly half of the most expensive lender, Jamii Bora Bank, that lends at 22.6 per cent.
CBK has been publishing interest rates charged by different lenders hoping to increase competition in the industry and lower the rates.
“Publication of average lending rates for commercial banks is expected to increase transparency and enable the borrowing public to make informed borrowing decisions,” said CBK in a statement.
Analysts have questioned the effectiveness of the rates publication with borrowers still sticking with their current lenders though.
“We haven’t seen a significant shift from high-priced lenders to low ones and that is the true test on whether the publication is having an impact,” said Francis Mwangi, head of research at Standard Investment Bank.
Large lenders have been under pressure to set the pace in lowering interest rates given their ability to mobilise cheap deposits and implement technological innovations that lower operational costs.
It is currently expensive and time consuming to move a loan between banks. Commercial lenders can fine a borrower for early repayment of a loan arguing they are compensating for lost opportunity.
The new “cheaper” lender also charges a loan processing fee, usually at a flat rate, negating the advantage accruable.
Security held by the old “expensive” lender has to be booked in the books of the “cheaper lender” attracting additional legal fees, valuation cost for a car and in the case of land stamp duty.
CBK has recommended the creation of a centralised security register to ease the process of transferring loans.
First Community Bank did not respond to the Business Daily’s queries on how they are able to retain the lower charges and whether their pricing has attracted new clients.
Credit: Business Daily