Equity Bank reverses move to raise lending rates

Equity Bank has withdrawn a notice it had sent to customers warning them of higher interest rates, saying it had reviewed its decision after yields on government securities tumbled, its chief executive said.

Yields on Kenyan Treasury bills have fallen in the past few weeks. The 91-day Treasury bill dropped below 10 percent last week after climbing above 20 percent last month. The central bank also said last week that it expected commercial banks to lower their rates in line with the fall.

CEO James Mwangi told a news conference on Monday the bank had wanted to raise rates to 24 percent from 17 percent this month, but had withdrawn the notice that was sent to borrowers.

“The rise in interest rates was a short-term measure but it has been shorter than we had anticipated and hence the withdrawal of interest rates increase notice,” he said.

Equity is the largest bank in Kenya by number of depositors and its decision may be echoed by other banks.

Businesses and economists have often blamed high commercial interest rates for stifling investment. Banks say they have to pass on the high cost of money to their customers.

Central Bank of Kenya Governor Patrick Njoroge, who took office this year saying that one of his goals was to help to reduce commercial loan rates, said last week he expected banks rates to mirror the fall seen in Treasury yields.

Mwangi said stable inflation, which is within the central bank’s preferred range of 2.5-7.5 percent, as well as falling imports, would support stable interest rates.