Kenyan banks forced to disclose hidden loan fees on cost of credit website

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Kenyan banks forced to disclose hidden loan fees on Central Bank of Kenya’s Cost of Credit website as from September 1st 2018.

“The CBK now mandates all commercial banks to upload their respective internal and external fees for all products on the cost-of-credit website to enable customers make rational financial decisions,” the central bank announced.

“We need to arm the customers much more by affording them a way of window when shopping for loans through the website,” CBK governor Patrick Njoroge said.

The cost of credit website will serve as a benchmark for bank customers to compare total cost associated with a loan and its repayment schedule.

The cost of credit website will serve as a benchmark for bank customers to compare total cost associated with a loan and its repayment schedule.

The cost of credit website will serve as a benchmark for bank customers to compare total cost associated with a loan and its repayment schedule.

 

The cost of credit website will also reveal lenders’ annual percentage rate, which takes into account the interest rate component, bank charges and fees, third party costs including legal fees, insurance costs, valuation fees, and government levies.

“A key factor is how banks adjust their business models in the new environment. This is a shift from lazy banking to real banking,” Njoroge said.

Credit to households, manufacturing, and real estate increased in March and April of 2018.

CBK’s Monetary Policy Committee, which reserved the main lending rate at 10 per cent on Monday, noted that in line with the interest rate cap, the number of loan applications in Kenya increased by 23.4 per cent between August 2016 and April 2017.

Usually banks take home about 0.9 per cent of loan value in fees and commissions. Equity, KCB and Co-op Bank had the highest non-interest charges at 2.02 per cent, 1.37 per cent and 1.07 per cent, respectively, of the loan value.

Commercial banks in Kenya made $215 million (Sh22.22 billion) in fees and commissions from loans and advances in 2017, with the non-interest charges expected to rise above 100 basis points following the interest rate cap as lenders sought to compensate funded income shortages.

The value of loan applications, on the other hand, decreased by 18.3 per cent.

Between August 2016 and April, the number of loan approvals increased by 35.7 per cent while their value decreased by 16.3 per cent.

Loans to micro, small and medium enterprises was down 5.7 per cent in the period, even though small banks have increased lending to this sector.

“If you want to know who has reduced lending to this sector …it is the large banks,” he said. “This is a concern because this is really where job creation and potential growth for output takes place.” CBK governor Patrick Njoroge said.

CBK launching cost of credit website is in partnership with Kenya Bankers Association and the industry lobby, and it will now help borrowers compare hidden loan charges in Kenya.

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