(Bloomberg) -- Kenyan banks have begun aggressively raising lending rates, with interest charges potentially reaching 30% in the coming months, the highest in two decades, the Sunday Standard reported.
The surge is set to burden borrowers with substantial debt servicing costs against the backdrop of a rising cost of living, the newspaper said.
Lenders have taken their lead from the Kenyan central bank’s move to push lending rates to a 10-year high of 12.5% in a bid to stabilize the shilling and curb inflation. Equity Bank, Kenya’s largest by customer base, was the first to announce a rate increase, and others are expected to follow. Effective Monday the bank’s reference rate will rise to 17.56% from 14.69%.
Central Bank of Kenya Raises Rate to 12.5%
Concerns are increasing about reduced borrowing, loan forfeitures and an economic slowdown as higher interest costs put the squeeze on borrowers. Banks may tighten lending standards and ration out loans, particularly to small borrowers, the newspaper said.
Banks have already allocated 60 billion shilling ($391 million) for potential loan losses due to an economic slowdown and rising defaults, according to the Nairobi-based newspaper.
Over 54% of Kenyan borrowers and traders are at risk of defaulting on their loans, due to worsening economic conditions, the newspaper said, citing research by Central Bank of Kenya.
Central Bank Governor Kamau Thugge said last week’s rate hike was Kenya’s best weapon to cool off the shilling, adding that policymakers “are aware of its potential costs one being the impact it will have on growth.”
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