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New surge in bank loan costs bad for economy – Business Daily

Business loan concept. FILE PHOTO | NMG
Reports that more than half of commercial banks raised their lending rates to individuals and businesses in the second quarter of the year signal difficulties in accessing affordable credit.
The latest bank loan and overdraft rates data published by the regulator show that some lenders charged as high as 16.4 percent for business loans in June, and 16.8 percent for overdrafts, representing a jump of up to 4.8 percentage points from the March rates.
This sharp increase in the cost of loans will effectively deny borrowers the respite they need to boost their liquidity. This does not augur well for an economy that is struggling with inflation, election-related uncertainties and slow recovery from the Covid-19 economic slump.
The high cost of loans will also kill small businesses that, according to State statistics, are the leading creators of jobs. By increasing interest charges, banks risk losing some customers who are already feeling the pinch of difficult economic conditions.
Banks should consider lower returns, which take into account the long-term needs of their customers as well as the economy to foster shared prosperity.



Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.