Absa gets risk based loan pricing greenlight

Absa Bank Kenya has received the approval of the Central Bank of Kenya (CBK) to roll out risk based pricing on loans.

The lender becomes the second tier one bank to reveal the regulatory nod after Equity Group as the majority of Kenya’s top banks await similar approvals from the CBK.

Absa is however yet to implement the new loan pricing model having just received the nod at the halfway stage of the year.

“We have just received our approval from CBK. I would say it’s still early days. We are putting the mechanisms in place and we are come to market and disclose specific new rates,” noted Absa Bank Kenya Plc Chief Finance Officer Yusuf Omari.

Like Equity, Absa says it is unlikely to immediately effect higher interest rates on customer loans given the prevailing tough operating environment.

With the approval for risk based pricing, banks had been expected to lift interest rates based on assigned credit risks to each category of borrowers.

However, lenders now appear reluctant to lift interest rates as they assess their effect to book quality from the potential of default from customers unable to afford the higher interest rates.

“We are all operating in the same market with the same customer set. I don’t expect a lot of banks to have hugely different ranges in terms of pricing. The reality is that the current economic environment is very different to what when we first applies for risk-based pricing. People also need to remember that it’s one thing to het the approval and another to implement it,” Absa Bank Kenya Managing Director Jeremy Awori stated.

“In an ideal world, we don’t want to charge higher interest rates than we would need to.”

During six months to the end of June, Absa average yield from its loan book stood at 10.7 per cent.

On its part, Equity Group said it has set a maximum 13 per cent rate on loans during the same period.

Meanwhile, Stanbic Bank Kenya and KCB Group have indicated that they are still awaiting CBK’s nod on risk based pricing.