The recent unveiling of the new Kenya Banks’ Reference Rate (KBRR) by the Central Bank of Kenya is set to promote transparency in the banking sector as it will help customers see what rates local banks are offering for loans especially in terms of interest.
The new rate set was announced by Professor Njuguna Ndungu who is the Chairman of the the Monetary Policy Committee and it stands at 9.13 percent.
“This level of the KBRR will be effective from 8th July, 2014 until its next review in January 2015 (if conditions do not drastically change),” said Ndungu.
The new KBBR was informed by the Central Bank Rate and the weighted 2-month moving average of the 91-day Treasury bill rate after discussions with stakeholders , CBK and National Treasury held discussions.
“The KBRR was developed as part of the recommendations to enhance the supply of private sector credit and mortgage finance in Kenya by facilitating a transparent credit pricing framework. It will be the base rate for all commercial banks’ lending,” added Ndungu.
This new development comes in the wake of the introduction of the Annual Percentage Rate (APR) by the Kenya Bankers Association, which is another tool that customers will use to compare the total cost of borrowing apart from interest rates.
This will require banks to provide loan applicants with a breakdown of the Total Cost of Credit in line with the Central Bank Prudential Guidelines.
The APR takes into account costs of the interest rate component; bank charges and fees; and third party costs, including legal fees, insurance costs, valuation fees, and government levies.