Loan interest margins have shrunk as commercial banks provide higher rewards on fixed deposit accounts to entice large depositors.

According to the 2023 Economic Survey, the loan deposit spread fell from 5.66 percent in December 2021 to 5.5 percent in December 2022.

Large banks, on the other hand, have reduced financing costs since they may accept large deposits through lower-interest-bearing current and savings accounts, commonly known as CASAs, which are the most cheap and major source of funding for banks.

Spreads have narrowed as a result of the Central Bank of Kenya’s (CBK) tighter monetary policy. The benchmark lending rate, the CBR, was raised three times in 2022, from 7% in December 2021 to 8.75% at the end of the preceding year. The CBK has tightened monetary policy in an effort to keep inflation within the government’s target range of 2.5 to 7.5 percent. The CBR is currently at a five-year high of 9.50 percent.

Spreads have narrowed as a result of the Central Bank of Kenya’s (CBK) tighter monetary policy.

The benchmark lending rate, the CBR, was raised three times in 2022, from 7% in December 2021 to 8.75% at the end of the preceding year.

CBK has tightened monetary policy in an effort to keep inflation within the government’s target range of 2.5 to 7.5 percent. The CBR is currently at a five-year high of 9.50 percent.

Currently, there is a spread of 5.52 percent between the loan rate and the return on fixed deposits, with the lending rate at a nearly five-year high of 13.06 percent, the highest rate since July 2018.

Spreads have, however, somewhat increased from a smaller 5.3 percent in January. Most institutions have been forced to increase savings rates for large depositors as a result of rising returns on government debt instruments.