Stanbic Bank Kenya sets 19 percent interest rate on riskiest borrowers

Stanbic Bank Kenya has set 19 percent as the highest interest rate for risky borrowers as the lender begins implementing risk-based pricing after receiving approval from the Central Bank of Kenya (CBK) last December.

The bank says clients will be priced up to a premium of five percentage points on its internal benchmark lending rate currently set at 13.12 percent –a moving target based on the prevailing Central Bank Rate.

“Our benchmark rate is at 13.12 percent and we can price up to 19 percent,” Stanbic Bank Kenya CEO Joshua Oigara told the Business Daily on Thursday.

Stanbic becomes the latest after Equity Bank Kenya to disclose the structure of its risk-based pricing mechanism.

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The lender, whose parent firm is Stanbic Holdings, has begun transitioning both new and existing customers into the new loan pricing regime save for customers with fixed interest rates.

“By the end of June, close to 70 percent of our facilities have been migrated to risk-based pricing,” added Mr Oigara.

He said that risk-based pricing will have the effect of creating market transparency allowing borrowers to shop for credit from different banks with full knowledge on pricing.

“There has been a lot of worry on whether risk-based pricing takes us back to the old regime but this is generally transparent pricing. In other markets such as the US, UK and even South Africa we have prime rates. Customers can challenge interest rates on offer and when not happy seek credit from other lenders,” he said.

The bank’s effecting of risk-based pricing raised its lending margins in the six months period to the end of June and was responsible for more than three-quarters of the increase in its interest margins in the period.

The higher interest margins were reflected in the performance of Stanbic Holdings which posted a 47 percent rise in net profit to Sh7 billion from Sh4.7 billion.

The group’s total income rose by 37.5 percent to Sh20.9 billion as net interest income grew faster than non-funded income at 44.5 percent to Sh12 billion.

Stanbic Holdings was forced to double its credit impairment charges to Sh2.4 billion from Sh1.2 billion previously on the adverse assessment of some of its corporate borrowers.

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The company resumed paying interim dividends with its board recommending the payment of Sh1.15 per share by September 27 to shareholders on its books as of September 4.

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