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Should bank lending rates be regulated?
Rank: Veteran Joined: 2/2/2012 Posts: 1,134 Location: Nairobi
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2012 wrote:I think they should.
I've always wondered why banks don't put their lending rates on their websites while they have the most current forex exchange rates. Neither do they put the interest to be earned on savings or fixed depo accounts.
Why do they try to hide this info? Is it because it's not good?
I understand why it might not be a good idea but what is? The fuel regulation seems to be working. I guess it's for the same reason that traders in Kenya's "Exhibition Stalls" also don't put price tags on their products - a very annoying habit! Nevertheless; your blanket statement is not accurate. Have a look at this website of a Kenya Bank: http://www.imbank.com/KE...r.asp?cat=interestrates
Proves you wrong, doesn't it? Also; just look at the rate for 50k kept for one month - 14%!!! T-Bills are at 17.5% http://www.centralbank.g...bills/manualresults.aspx
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Rank: Veteran Joined: 2/2/2012 Posts: 1,134 Location: Nairobi
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Rank: Chief Joined: 1/3/2007 Posts: 18,218 Location: Nairobi
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the deal wrote:
T-bills and bonds have tumbled to 16-17% have banks reduced lending rates...ofcourse there is every incentive to lend to a farmer at 19% than to put money in a t-bill at 17%...
SMH. Read what @guru said. For an extra 2% [with all the risks associated with drought, default, farmer's death, etc] why would the bank want to lend to the farmer? If my bank [I as a major shareholder] lent to a farmer for 2% more than T-Bills [assuming the other income from the farmer is nominal] I would fire the directors! The risk is too high. Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Chief Joined: 1/3/2007 Posts: 18,218 Location: Nairobi
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[quote=chiaroscuro] Nevertheless; your blanket statement is not accurate. Have a look at this website of a Kenya Bank: http://www.imbank.com/KE...r.asp?cat=interestrates
Proves you wrong, doesn't it? Also; just look at the rate for 50k kept for one month - 14%!!! T-Bills are at 17.5% http://www.centralbank.g...ills/manualresults.aspx[/quote] Thanks for the link. Unlike many others, it seems I&M Bank is being pro-active! Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Chief Joined: 1/3/2007 Posts: 18,218 Location: Nairobi
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As a depositor why would you place a single penny with Equity Bank vs I&M Bank! Compare and cry! http://www.equitybank.co...escharges.php?subcat=20
http://www.imbank.com/KE...r.asp?cat=interestrates
Courtesy of @chiaroscuro Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Chief Joined: 1/13/2011 Posts: 5,964
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NB: The ease of attracting deposits also plays a part on the annual rate of return on deposits.
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Rank: Member Joined: 11/21/2006 Posts: 608 Location: Ruiru
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IMHO, the current interest rates regime should not be interfered with. With inflation at the rate at 16.7% [Feb 2012] and CBR at 18%, I don't see what Kenyans want a sane bank to charge its borrowers. OK 30% may be on the higher side, but given the risk its is not an "immoral" proposition. My argument has always been... there should be sector specific incentives [probably discounted] that insulates production [or growth] driven borrowings from interest rates fluctuations. For the rest of Kenyans who borrow from banks to import toys & clothing, banks should charge even more. BTW, who said banks were making abnormal profits? W.r.t investment, and compared to other industries there is no iota of truth in this. May be they are not as efficient... but that's an argument for another day "..I am because we are. "― Ubuntu, Umtu,
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Rank: Member Joined: 10/14/2011 Posts: 661
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 From the banks’ fixed deposit bands/range, the qualifying amount is 50k. This is the same requirement for investing in TB with a shorter tenor and better rates. Today’s results: 91 day is 17.006% 182 day is 17.726%
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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chiaroscuro wrote:Some times I think that those who advocate for controlling of bank interest rates have probably never borrowed from a bank. Reason: why would anyone in their right mind borrow at 25% when the major banks are lending at around 15%?
Proof: Last month a neighbour needed to buy a car; she walked into Equity and enquired. They said car loans are at 14.5%. She signed the papers and three weeks later she had the car.
So, I ask: where are these banks that are charging 25%? HAKUNA KITU KAMA HIYO!!DISCLAIMER: I am not an employee of EQUITY, but I am a shareholder. 14.5% flat rate is equivalent to 25.77% Reducing balance rate. Equity knows how to sell to members 
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Rank: Elder Joined: 12/9/2009 Posts: 6,592 Location: Nairobi
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I think Equity rides on it's 'old hype' of being for Kenyans but the more I look at it the more I think they are exploiting that hype and people need to wisen' up.
BBI will solve it :)
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Rank: Elder Joined: 3/2/2009 Posts: 26,330 Location: Masada
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@mwekezaji, what will be monthly instalment for kcb/equity/co-op loan of kes. 100,000 taken for a period of 60 months,reducing balance at 25.77% interest? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@mwekezaji, what will be monthly instalment for kcb/equity/co-op loan of kes. 100,000 taken for a period of 60 months,reducing balance at 25.77% interest? 2,980.50 The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan
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Rank: Elder Joined: 12/9/2009 Posts: 6,592 Location: Nairobi
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mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right?
BBI will solve it :)
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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2012 wrote:mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right? @2012, Your figures sound like of a loan that has been completely restructured because they do not fit in Equated Monthly Instalments (EMI) or non EMI. When interest rates change, it’s the interest payment component that changes. Under EMI (which is what I gave in post 32), the instalments include both the principle and interest payment and so when rates change, you have to similarly change the monthly instalment if you intend to retain the same repayment period. Otherwise, you have to vary the repayment period if you intend to retain the same monthly instalment (like what most banks offered its customers to avoid defaults when rates shot above the roof). When rates go down it becomes a sweet song. In flat rate loans, it’s a different story.
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Rank: Member Joined: 11/21/2006 Posts: 608 Location: Ruiru
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mwekez@ji wrote:2012 wrote:mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right? @2012, Your figures sound like of a loan that has been completely restructured because they do not fit in Equated Monthly Instalments (EMI) or non EMI. When interest rates change, it’s the interest payment component that changes. Under EMI (which is what I gave in post 32), the instalments include both the principle and interest payment and so when rates change, you have to similarly change the monthly instalment if you intend to retain the same repayment period. Otherwise, you have to vary the repayment period if you intend to retain the same monthly instalment (like what most banks offered its customers to avoid defaults when rates shot above the roof). When rates go down it becomes a sweet song. In flat rate loans, it’s a different story. I agree, correct interpretation "..I am because we are. "― Ubuntu, Umtu,
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Rank: Elder Joined: 3/2/2009 Posts: 26,330 Location: Masada
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@putter (mwekezaji), we have a loan calculator at the bottom of co-op bank website, is that calculator based on a reducing balance or flat rate? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@putter (mwekezaji), we have a loan calculator at the bottom of co-op bank website, is that calculator based on a reducing balance or flat rate? putter - golf and its furahiday afternoon, i .... That calculator is based on reducing balance
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Rank: Elder Joined: 3/2/2009 Posts: 26,330 Location: Masada
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@putter, thank goodness that calculator is based on reducing balance. One question on my example above;what will be the monthly instalment for a flat rate? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@putter, thank goodness that calculator is based on reducing balance.
One question on my example above;what will be the monthly instalment for a flat rate? 100,000 at 25.77% flat rate with a repayment period of 5 years works out as follows {(100,000*0.2577*5)+100,000}/{5*12} = 3,814.20
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Rank: Elder Joined: 3/2/2009 Posts: 26,330 Location: Masada
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mwekez@ji wrote:Impunity wrote:@putter, thank goodness that calculator is based on reducing balance.
One question on my example above;what will be the monthly instalment for a flat rate? 100,000 at 25.77% flat rate with a repayment period of 5 years works out as follows {(100,000*0.2577*5)+100,000}/{5*12} = 3,814.20 A whole 900 sirrings! This could be the method kina Jakoyo were against. This will be 9,000 sirring per month for 60 months if you had taken a METRE!!! (60*9,000) =  Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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