July 18, 2024

What the NCBA Rate Hike Means For You

What the NCBA Rate Hike Means For You

NCBA Bank Kenya has announced a significant increase in their lending rates from 16.50% p.a. to 17.50% р.а. effective May 21st, 2024. Additionally, United States Dollars Base Lending Rate will increase from 11.0% p.a. to 11.75% p.a.

The above change will have the following impact on your loan facilities:

  • Variable Rate Loans: These loans, which are commonly used for business ventures, car purchases, or personal needs, are directly tied to the BLR. Borrowers with variable-rate loans will see an increase of 1.00% for KES loans and 0.75% for USD loans in their monthly repayments starting May 21st, 2024.
  • New Loan Applications: Anyone applying for a new loan from NCBA will be subject to the revised BLR as the new Base Lending Rates take effect immediately. This means they will face the higher borrowing costs upfront.
  • Fixed Rate Loans: Borrowers with existing fixed-rate loans are somewhat shielded from the immediate impact. Fixed-rate loans lock in an interest rate for the loan term, offering some protection from BLR fluctuations. However, it’s important to remember that even fixed-rate loans typically expire after a set period. When borrowers with fixed-rate loans come up for renewal, they will likely face the prevailing BLR at that time.

All other terms and conditions of your loan facility remain unchanged!!

NCBA’s decision is not an isolated incident. It aligns with the CBK’s recent hike in the Central Bank Rate (CBR), currently at its highest level in 12 years.

The Base Lending Rate (BLR) is a dynamic figure, influenced by various factors beyond the Central Bank Rate. Inflation is a key player. When inflation rises, the value of money decreases. To compensate for this erosion in purchasing power, banks raise lending rates to ensure a return on their loans.

Currency exchange rates also play a role, particularly for USD loans. When the Kenyan Shilling weakens against the USD, it becomes more expensive for banks to service their dollar-denominated debt. This can lead to an increase in the BLR for USD loans specifically.

Reasons Why The Base Lending Rate Changes

  1. Central Bank Rate (CBR)

This is arguably the most significant factor influencing the BLR. The Central Bank of Kenya (CBK) sets the CBR, which is essentially the benchmark interest rate at which banks borrow money from each other.

When the CBK raises the CBR, as they recently did to a 12-year high, it becomes more expensive for banks like NCBA to acquire funds.

To maintain profitability, NCBA is forced to adjust their BLR upwards.

This ensures they can cover the increased cost of borrowing and still make a profit on the loans they offer to customers.

In essence, a higher CBR creates a domino effect, ultimately impacting borrowers through a higher BLR.

  1. Cost of Funds

Beyond the CBR, the BLR also reflects the interest rate that NCBA pays to acquire funds from other sources, most notably customer deposits. Banks rely on these deposits to provide loans.

If the overall interest rate offered on deposits increases, attracting new deposits becomes more expensive for NCBA. This can lead to an increase in the BLR to compensate for the higher cost of acquiring funds.

  1. Operational Expenses

Running a bank involves various costs, including salaries for staff, rent for office space, and utilities. These operational expenses are factored into the BLR calculation.

When operational expenses rise significantly, NCBA adjusts the BLR upwards to ensure their profitability isn’t compromised.

  1. Profit Margin

Banks are not charities; they aim to make a profit on their lending activities. The desired profit margin is reflected in the BLR.

While the other factors mentioned above can directly influence the BLR, banks also consider their profit goals when setting the BLR. This ensures they cover their operational costs and generate a reasonable return on their lending activities.

Read Also : Sanlam Kenya’s 10-year No-Dividend Streak Carries On.

The impact of higher lending rates goes beyond just affecting monthly loan repayments. For businesses, access to affordable credit is crucial for funding expansion plans, investing in equipment, or managing working capital.

A rise in the BLR can stifle these growth opportunities. Businesses may be forced to delay or scale back their ambitions, potentially impacting job creation and overall economic activity.

Similarly, individuals seeking mortgages to finance their dream homes may find themselves priced out as loan costs increase. This can dampen consumer spending and hinder the housing market.

NCBA, offers a range of banking services, including ncba internet banking where customers can manage their accounts, transfer funds, pay bills, and access a range of financial services online.

Additionally, the ncba bank loans are tailored to meet the diverse needs of individuals and businesses.

For seamless payments, ncba bank paybill (880100) provides a convenient way to settle bills and obligations. As a leading financial institution in Kenya, the bank also offers opportunities for career growth through ncba bank careers.

The network of ncba bank branches further provide accessible banking services to customers nationwide.