EDITORIAL: Lower cost of borrowing

The decision by a few commercial banks to drop plans to raise the cost of loans is not only good news to the borrowers, it also makes economic sense looking at the fundamentals like the Treasury bill and bond rates that have significantly fell from as high as 22 per cent to less than 10 per cent last week.

The decline in the yields also helped to keep the cost of deposits low just when large depositors were demanding a raise. A fall is what market watchers, among them the regulator Central Bank of Kenya, expected.

Indeed, Tuesday CBK’s monetary policy team maintained the central bank rate at 11.5 per cent, helping further to drive the downward trend.

When interest rates hit the ceiling, it puts the economy on a wait-and-see mode, and greatly hurts mega projects, which require huge funds to launch and complete.

Indeed, when projects are frozen, the pain of joblessness will be more searing and is likely to compromise personal and business security.

While Barclays, StanChart, and Equity banks deserve a praise for blazing the trail on the borrowing rates, we ask the entire banking fraternity to follow suit and lessen the borrower’s burden.

Indeed, the high cost of loans hurts lending volumes and subsequently the interest income of the lenders.

Should the individual banks not pick the cue, the bankers umbrella body KBA ought to lobby its members to read the mood of the market and cut the cost of loans.
Affordable loans are a win-win case for banks and the current and new borrowers.

SOURCE: BUSINESS DAILY