Equity pauses interest rates hike despite risk pricing nod

Lender Equity Group is yet to lift interest rates on loans despite obtaining the nod to implement risk-based credit pricing from the Central Bank of Kenya (CBK).

The lender has attributed the hold to the need of mirroring the current tough operating environment as mirrored by rising inflation and depressed purchasing power which the bank describes as a perfect storm.

According to Equity Group Head of Financial and Regulatory Reporting Mary Nteere, the bank has retained the prevailing low-interest rate in view of cushioning its customers.

“Customers are coming under a lot of pressure in terms of being able to survive. A reprice in the prevailing environment may not be the best play. We are keeping our interest rates low as we monitor the macroeconomic environment,” she said.

As such, Equity has left its highest interest rate at no more than 13 per cent for the operating period ended June 2022.

In May, the lender disclosed that it had received CBK approval to roll out the risk-based pricing setting new interest rates at between 13 and 18.5 per cent.

Besides cushioning its borrowing customers, Equity says lifting interest rates would have been counterproductive from a competition standpoint with peer banks yet to receive the same nod.

“From the public knowledge we have, Equity is the only tier one bank to receive approval for risk-based pricing. This has created a mismatch between what we can do and what our competitors can do,” added Ms. Nteere.

According to the Kenya Bankers Association (KBA), only about half of banks have received CBK’s nod for risk-based loan pricing.

Data from the CBK shows the average commercial bank lending rate has remained relatively unchanged having stood at 12.27 per cent at the end of June from 12.12 per cent in January.

Risk-based pricing for loans is the product of the 2019 Banking Sector Charter by the CBK which followed the repeal of interest rate caps and seeks to bring transparency and accountability to the pricing of credit in the country.