Tuesday, August 3, 2010

Kenyan bankers urged to drop rates

August 3, 2010 - Bloomberg

Kenya's commercial banks, which are reporting higher earnings and fewer defaults, should pass on lower interbank lending rates to their clients to help sustain rising economic growth, the country's central bank said yesterday.

The Central Bank of Kenya's decision to cut its benchmark rate by 0.75 percentage points to 6 percent on Wednesday last week sent a "strong signal" that lenders should slash the cost of borrowing, governor Njuguna Ndung'u said.

Lending growth needed to accelerate to maintain expansion in the economy, Ndung'u told reporters. The bank has cut its key lending rate six times since last year to help spur growth and boost credit extension. The rate is at its lowest since the bank began setting it in June 2006.

"Growth is no longer fragile," Ndung'u said. "Economic recovery is on course with increased optimism for enhanced growth in 2010, hence the need for banks to increase credit to the private sector."

The average lending rate fell to 14.39 percent in June from 14.58 percent in April, he said.

Domestic bank credit grew 27 percent in the year to June and non-performing loans fell, the central bank said last week.

Inflation was little changed at 3.6 percent in July, following good rains, the central bank said yesterday. Inflation was expected to remain subdued as fuel prices had stabilised and domestic food output was good, the bank said. The target inflation rate is 5 percent.

Economic growth of 4.4 percent in the first quarter was driven by agriculture, manufacturing and tourism, the central bank said. It forecast similar growth in the second quarter.

Kenya's gross domestic product expanded by 2.6 percent last year, up from 1.7 percent the previous year.

Faster growth is boosting banks. Net income at Equity Bank, Kenya's biggest lender by customers, jumped 44 percent to 3.01 billion shillings (R267 million) in the half-year to June. Kenya Commercial Bank's profit for the first half rose 21 percent.