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When You Raise The Rates, You Make Money Very Expensive

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When You Raise The Rates, You Make Money Very Expensive


When You Raise The Rates, You Make Money Very Expensive

By Juma / Published February 6, 2023 | 10:15 am

KEY POINTS

Banks often look at the ability to pay and the willingness to pay before deciding on whether they should give you a loan. The ability to pay is the financial soundness of the borrower while the willingness to pay is about one’s borrowing and payment history.

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KEY TAKEAWAYS

Mr. Gachora says risk-based lending by the majority of Kenyan banks is allowed because banks have to protect their investments. He says “risks in the financial sector increased after the Covid-19 pandemic,” and there has always been the “fear of the unknown” since then.

NCBA Managing Director and CEO, John Gachora, has weighed into the lending interest rate discussion in Kenya and its impact on loans. According to Mr. Gachora, when the banks increase their interest rates, they “make money very expensive.”

According to the NCBA MD, the Central Bank Rate that was retailed at 8.75 percent by the Central Bank of Kenya is a guidance rate that banks base on to determine their loans to their customers. He says each bank has its own way of pricing its loans.

“Banks often look at the ability to pay and the willingness to pay before deciding on whether they should give you a loan. The ability to pay is the financial soundness of the borrower while the willingness to pay is about one’s borrowing and payment history,” he said.

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Mr. Gachora says risk-based lending by the majority of Kenyan banks is allowed because banks have to protect their investments. He says “risks in the financial sector increased after the Covid-19 pandemic,” and there has always been the “fear of the unknown” since then.

According to the veteran banker, banks will treat a first-time borrower as riskier than a returning customer. It is also important for those intending to borrow to learn to have the “willingness to pay back the loan once the time is due” to improve their credit score.

Sentiments by Mr. Gachora on the “willingness to pay” came at a time there was a discussion in Kenya that many Kenyans take loans from banks and digital platforms with no plans of paying back. What this means is that there are people who take loans when they have already decided that they will not pay them back.

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About Juma

Juma is an enthusiastic journalist who believes that journalism has power to change the world either negatively or positively depending on how one uses it.(020) 528 0222
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Email: info@sokodirectory.com

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