(Bloomberg) -- Commercial Bank of Africa Ltd., which is controlled by Kenyan President Uhuru Kenyatta’s family, broke ranks with other banks by setting its lending rates below competitors after the government capped loan costs.
The lender, based in Nairobi, will use the Kenya Banks Reference Rate, currently at 8.9 percent, as its base rate to determine the cost of credit with effect from Sept. 14, according to a statement posted on its Twitter account on Friday. Other Kenyan banks, including KCB Group Ltd., the biggest by assets, and Barclays Bank of Kenya Ltd., have said they will use the Central Bank Rate, which stands at 10.5 percent.
Kenyatta last month signed a law capping commercial lending rates at 400 basis points above the central bank’s base rate. The Kenya Bankers Association has sought clarification from the central bank about whether that base rate should be the KBRR or the CBR. The wording of the law has also been questioned by lawyers because it stipulates that banks should set their lending rates at “no more than four percent, the base rate set and published.”
CBA is Kenya’s biggest closely held lender. Business Daily, a Nairobi-based newspaper, reported in 2013 that Kenyatta’s family controls the bank.
The financial institution is Kenya’s biggest provider of mobile-phone loans. The product known as Mshwari disbursed 40 billion shillings ($395.3 million) in credit by end-2015 while KCB Group extended 7 billion shillings through phones, according to Safaricom Ltd., Kenya’s biggest telecommunications provider.
The micro-loans issued through phones would be “fee-based,” Chief Executive Jeremy Ngunze said by phone, without elaborating. "We are very clear about Mshwari loans being fee-based," he said.
Kenyatta, who is seeking a second term in elections scheduled for August 2017, said he sided with Kenyans frustrated by the cost of credit and low rates on savings. Banks have warned credit could dry up if they can’t price loans according to the risks they are taking, which may hurt the $61 billion economy, East Africa’s biggest.