Six banks get approvals for risk-based loan pricing

Six commercial banks have gotten the approval of the Central Bank of Kenya (CBK) to roll-out the risk-based pricing model for customer loans.

This is according to the Kenya Bankers Association (KBA) CEO Habil Olaka who in an Oped said the approvals had been made at the end of March 2022.

“These banks, based on the recently published 2021 audited financials hold 18.4 per cent of the banking industry's gross private sector loans,” he said without divulging the identity of the six.

The CBK has from last year considered banks' risk-based pricing models whose approval is expected to open more credit taps to small and medium enterprises (SMEs).

So far, only Equity Group has disclosed the approval of its risk based pricing model which will see future loans priced at between 13 and 18.5 per cent depending on each borrower’s risk profile.

“The risk-based pricing mechanism allows everyone to play irrespective of their risk. We now have no excuse of leaving anyone behind because we can price risks within a reasonable range,” Equity Group Managing Director James Mwangi said previously.

Other top tier banks including Absa, Stanbic and KCB have disclosed being in negotiations with the reserve bank to win their own approvals on loan pricing.

The risk-based pricing regime for consumer loans is seen as a cure and closure to the stay of interest rate caps which were in place between September 2016 and October 2019 and served to curtail credit growth to the economy.

Despite the lifting of the caps more than two years ago, credit to the private sector has not grown by double digits since June 2016 with banks unable to automatically lift yields from lending by imposing higher interest rates.

Analysts have now tipped private sector credit to rise alongside interest rates on the approval of risk-based lending as more customers are accommodated in loan issuance.

“We expect private sector credit growth to improve going forward, with a high likelihood of exceeding the double-digit range in the cause of the year as businesses have greater access to credit,” noted analysts at Sterling Capital.

Habil Olaka has nevertheless warned that the implementation of the model could be temporarily hit by the stay of a moratorium on CRB listings for borrowers which stays until October this year.