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This research report was prepared by the Research Department of Old Mutual Securities Limited. Old Mutual Securities Limited is a securities trading company licensed by the Capital Markets Authority (Kenya) for the purpose of facilitating trade on the Nairobi Securities Exchange.

Here are our views on the news making headlines today for Kenya:
Less than half of the loans issued by banks are based on the new pricing mechanism, slightly less than two months to the regulatory deadline. The Central Bank of Kenya (CBK) has ordered all loans be formulated using Kenya Banks Reference Rate (KBRR) as the minimum price. Data from the regulator shows only loans amounting to Sh825.8 billion issued by banks and microfinance institutions had been converted to the KBRR framework by end of April compared to a total loan book of Sh2.03 trillion.

Our View: Despite the ongoing developments within the banking sector where some banks are now pegging deposit rates on KBRR so as to ensure they protect their interest margins, the process of basing all loans on the new pricing mechanisms still face challenges since some loans were priced before the introduction of the KBRR. KBRR increases transparency on how loan pricing is done and hence may not necessarily lead to an era of cheap credit since it’s difficult to determine the credit risk of the borrower.
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