Equity Bank has announced a 0.5 percentage point cut in its cost of loans in line with the Central Bank of Kenya’s (CBK) revised benchmark rate.
The lender announced on Thursday that its loans would now be priced at 13 per cent.
Group chief executive James Mwangi said CBK’s signal lowering the benchmark rate from 9.5 per cent to nine per cent ‘will attract more borrowers.’
“It is now anticipated that the affordable interest rates will stimulate private sector borrowing, thus enhancing the economic growth rate,” he said.
Mr Mwangi has previously criticised the rate cap, warning that taking away banks’ powers to price loans could force the lenders to close credit taps on risky borrowers slowing the pace of economic expansion.
Private sector credit grew by 4.3 per cent in the 12 months to June 2018, compared to 2.8 per cent in April this year, according to the CBK.
Mr Mwangi who also chairs Kenya Vision 2030 Delivery Board now says the CBK’s latest move will result in economic growth and create employment for the youth.
The bank said it had from Wednesday cut the cost of loans and also capped the interest on saving deposits at 6.3 per cent, being 70 per cent of Central Bank Rate as provided by the banking laws.
Equity becomes one of the first banks to publicly announce the drop in rates. It is expected that all lenders will follow suit.
On Monday, CBK’s Monetary Policy Committee cut the rates noting that inflation expectations were well anchored within the target range and that economic growth prospects were improving.
However, it retained its view that the cut comes with a risk of perverse outcomes such as banks tightening credit further.