I&M Bank and Standard Chartered have the highest borrowing costs among Tier One lenders in Kenya, with external or external fees being a key borrowing cost differentiator among major banks.
The Borrowing Costs website developed by the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) shows that a borrower taking an unsecured personal loan of Sh1million for one year from I&M incurs a total borrowing cost of Sh127,140 .
A similar loan at StanChart is Sh117,745, followed by Equity Bank at Sh114,057 and Co-operative Bank at Sh111,929.
These fees include interest on the debt and other internal and external charges such as bank fees, legal fees, insurance and government taxes.
According to the website, the lowest borrowing costs for a loan from Absa Bank Kenya are Sh76,147. However, it does not specify whether bank and external fees apply to the loan.
The other four lenders charge between Sh95,807 (DTB) and Sh107,207 (KCB) for their loans.
Tier 1 lenders have 12.65 million loan accounts on their books, accounting for 97 percent of the total in the banking sector, according to the CBK’s 2021 banking supervision report. They have also cornered 75 percent of the industry’s total deposits and assets.
In mid-2017, information on borrowing costs for personal loans and mortgage lending began to be published on a common web platform to make it easier for customers to choose between lenders when looking for a loan.
Previously, comparing loan prices between different banks was difficult for bank customers, whose only option was to tediously physically move from one institution to another when purchasing a loan.
Based on the currently published loan prices, there is a finite range in loan interest rates between Tier One banks, with the variance resulting from bank fees and external fees.
KCB, Equity, NCBA and DTB charge 13 percent, I&M 14.3 percent, Stanchart 14 percent, while Absa and Stanbic charge 13.77 percent and 13.65 percent, respectively.
DTB published the lowest charges excluding interest at Sh24,000 while the highest charges are for I&M loans at Sh48,000.
Lenders, due to their limited ability to raise interest rates, turned to the unfunded revenue from such fees to increase revenue before their risk-based pricing models were approved by the CBK.
Only Equity Group has announced that it has received pricing approval, but yesterday the CBK said more than half of banks have already had their risk-based models approved or signed by the regulator.
These approvals will allow banks to vary lending rates according to a borrower’s risk profile, with the expected result of improved access to credit across the economy.