The Kenyan arm of Standard Chartered Bank announced, in a recent note sent to customers, it is cutting the interest charge on loans granted before the end of 2019 by 0.5 percentage points. The measure is to comply with the latest decision of the Monetary Policy Committee of the country's Central Bank, which lowered its key rate by the same amount.

In theory, a cut in the key rate (the Central Bank refinancing rate) gives more flexibility to commercial banks, which should, in turn, lower the rate they charge their customers. In practice, however, this is not always the case, as the pricing of credit depends on several other parameters.

This is the first positive signal from a Kenyan bank since the law capping the interest rate was abolished in November 2019, after three years of mixed and controversial application. The legislation was intended to make credit accessible, as the sole tool of monetary policy was no longer sufficient.

While the interest rate on old loans has fallen, reducing the overall amount to be paid, the monthly payments have remained fixed, which implies that Kenyan borrowers from Standard Chartered Bank will continue to pay their monthly installments as in the past, but that the repayment period will be shorter.

For the third quarter of 2019, Standard Chartered Bank of Kenya only achieved a slight increase in net interest income to KSh14.6 billion, mainly due to lower interest charges on customer deposits. By lowering the rate on old loans and maintaining its current level on future loans, the bank is meaning that the end of the rate cap will not be the end of interest increments.

On the Nairobi Stock Exchange, where Standard Chartered Bank Kenya is listed, investors also seem reassured. The value of its share rose by 2.13% on January 3, 2020, the day after the announcement was made to customers. Less pressure on clients means less risk of default and therefore reduced profitability. Over the last 12 months, the share price has risen by 7.6%.

Idriss Linge