Co-op Bank has cut the interest rates charged on Personal Loans and Asset Finance to selected borrowers by a percentage to 13 per cent.

The new rates came into effect on April 1. 

"Dear Customer, You can now top-up your existing personal loan at a rate of 13 per cent p.a instead of 14 per cent. Please apply at any Co-op Bank Branch, the lender said in a statement. 

This rather contrarian approach bucks the industry trend where the majority of the lenders are revising lending rates significantly upwards, especially in light of the recent upward adjustment of CBR by a huge 75 basis points to 9.5 per cent.

Co-op Bank’s reduction of the lending rate is the bank’s response to the good loan repayment record and reduced default risk that the target check-off scheme loans have recorded over time.

"It is a deserved reward for customers who have maintained a consistently good credit record,'' Co-op Bank MD Gedion Muriuki said. 

Among the main beneficiaries of the new lower rates include key corporate and institutional employers including state agencies and ministries. 

The new offer is a huge relief, especially at a time when many Kenyans are grappling with a cash crunch when every shilling counts.

The bank has retained a credit pricing model that is dynamic and attuned to respond effectively to credit performance.

In this regard, the bank is working to extend this benefit beyond the current target customer segments namely Personal Loans and Asset Finance, to include all borrowers with good credit history.

Other lenders immediately raised borrowing rates immediately after CBK announced the new benchmark figure. 

“Dear customer, following the review of the CBR by CBK from 8.75 per cent to 9.50 per cent, effective April 1, 2023, KCB M-Pesa loan will be charged a fee of 8.85 per cent up from 8.79 per cent,” KCB Bank told customers.

Other lenders including NCBA, Family and Stanbic have already followed suit. Mobile lending apps like M-Swari and Absa's Timiza have also raised borrowing rates. 

Kenyans are already facing a high cost of living, with inflation beyond the 7.5 per cent upper limit target of the CBK for the ninth month running, as food prices remain the main cause of economic pain. Kenya National Bureau of Statistics (KNBS) data on March inflation on Friday showed that the inflation rate stayed at 9.2 per cent.

This is the fourth time the CBK has raised the CBR within a year and lenders have been quick to react whenever new rates are announced by raising borrowing costs for their borrowers.

CBK raised CBR from seven per cent to 7.5 per cent in May 2022, then raised it to 8.25 per cent in September 2022, to 8.75 per cent in November 2022, and now to 9.5 per cent. In the latest move, CBK cited different pointers of economic difficulties.