Equity Bank Follows CBK’s Lead, Increases Lending Rates to 14.69%

Equity bank borrowers will start paying more for their loans from Monday, July 10, 2023. This is after the lender revised their loan rates to reflect the new Central Bank of Kenya (CBK) benchmark lending rates.

In a notice, the bank notified its borrowers that its new lending rates stand at 14.69%, up from its former rates of 12.5%. 

Consequently, borrowers will be expected to repay their loans at the new rates plus a margin based on their credit risk.

The notice further stated that this would take effect on all new and existing Kenya shilling-denominated credit facilities.

𝐌𝐰𝐚𝐧𝐠𝐨 𝐑𝐨𝐮𝐧𝐝𝐮𝐩 𝐨𝐟 𝐓𝐨𝐩 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐂𝐨𝐧𝐭𝐞𝐧𝐭 [𝟔𝐭𝐡 𝐉𝐮𝐥𝐲]:

1. Following the increase in the Central Bank Rate last week, Equity Bank will, from 10th July, adjust upwards its reference rate for loans to 14.69% + margin based on credit risk pic.twitter.com/m1iMWbiYxo

— Mwango Capital (@MwangoCapital) July 6, 2023

The news comes days after Equity Bank acquired a 91.93% stake in Cogebanque, one of Rwanda’s largest commercial banks. The acquisition made Equity Bank the second-largest bank in Rwanda.

Potential Implications

The increase in lending rates means that borrowers will have to pay a higher interest rate on their loans. This will lead to an increase in the cost of borrowing for individuals and businesses.

Borrowers will have to adjust their budgets to accommodate the higher interest payments, which may impact their financial stability and ability to repay the loans. 

It may also discourage some potential borrowers from seeking loans, reducing demand for credit.

Equity Bank, as the lender, stands to benefit from the increase in lending rates. 

The higher interest rates might generate more income for the bank, leading to increased profitability. This move could improve the bank’s margins and enhance its overall financial performance.

Other banks in the market may assess the new rates set by Equity Bank and decide whether to adjust their lending rates accordingly. If other banks follow suit and raise their rates, it could become a general trend in the industry, impacting borrowers across the board.

Equity Bank’s yield on loans stood at 10.9 % in the quarter ended March 2023, the same yields the lender recorded in a similar period last year. 

According to its financial statements, Equity Bank’s loans and advances to customers grew by 21.3%, slower than the 23.3% growth in customer deposits.

“Customer deposits outpaced the growth in loans following aggressive deposit mobilization as the group leveraged more on borrowed funds and bank deposit liabilities to fund its investments,” stated the bank’s financial statements.

CBK Loan Rates

On June 26, the Central Bank of Kenya benchmark lending rates were revised upwards from 9.5% to a historic high of 10.5%.

CBK’s Governor, Dr Kamau Thugge, attributed the hike to inflation pressure, weak global growth prospects, ongoing geopolitical conflicts, and a response to worldwide measures to deal with these adverse conditions. 

In a statement, Thugge said that the new rates aim to reduce inflation by easing demand for credit.

According to Business Daily, CBK’s move to increase lending rates comes at a time when the country faces a rise in the cost of basic items following the implementation of the Finance bill. 

The bill doubled fuel taxes and introduced a housing levy, which has strained incomes and raised business costs.

Equity Bank is the first lender in the country to increase its lending rates in line with CBK’s new benchmark.

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