I&M Bank and Standard Chartered have the highest cost of credit among tier one lenders in Kenya, with external or third party fees proving a key differentiator in the cost of lending among the big banks.
The Cost of Credit website developed by the Kenya Bankers Association (KBA) and the Central Bank of Kenya (CBK) shows that a borrower who takes out an unsecured personal loan of one million shillings for one year from I&M will incur a total cost of credit of 127,140 shillings.
A similar loan at StanChart has a cost of 117,745 shillings, followed by Equity Bank at 114,057 shillings and Co-operative Bank at 111,929 shillings.
These charges include interest on debt and other internal and external charges such as bank charges, legal fees, insurance and government levies.
The lowest cost of credit, according to the site, is for an Absa Bank Kenya loan at Sh76,147. It does not, however, indicate whether there are bank and external charges on the loan.
The other four lenders charge between 95,807 shillings (DTB) and 107,207 shillings (KCB) for their loans.
Tier 1 lenders have 12.65 million loan accounts on their books, accounting for 97% of the total in the banking sector, according to the CBK banking supervision report for 2021. They also grabbed 75% of the total deposits and industry assets.
The publication of cost of credit information for personal loans and mortgages on a common web platform was launched in mid-2017, with the intention of making it easier for customers to choose between lenders when applying for credit.
Previously, comparing loan prices between different banks was difficult for bank customers, whose only option was a cumbersome physical trip from one institution to another when seeking a loan.
Based on currently published loan prices, there is a limited spread in terms of loan interest between top tier banks, with the spread stemming from bank charges and external fees.
KCB, Equity, NCBA and DTB charge interest at 13%, with I&M at 14.3%, Stanchart at 14%, while Absa and Stanbic charge 13.77% and 13.65% respectively.
DTB published the lowest non-interest charges at Sh24,000, while the highest charges are for I&M loans at Sh48,000.
Lenders have turned to unfunded revenue from these fees to generate revenue due to their limited ability to raise interest rates before getting their risk-based pricing models approved by the CBK.
Only Equity Group revealed it had received price approval, but yesterday the CBK said more than half of banks had already had their risk-based models approved or signed off with the regulator.
These approvals will allow banks to vary interest on credit based on a borrower’s risk profile, with the expected result of improved access to credit across the economy.