Absa Bank Kenya #ticker:ABSA has joined small lenders to offer the cheapest personal loans, breaking ranks with other big banks that have continued to issue relatively expensive credit facilities.
An Absa customer taking a Sh1 million, one-year personal unsecured loan today will incur a total credit cost of Sh71,807.
That is the same as the finance costs one will face at First Community Bank (FCB) and Housing Finance (HF) for a credit facility of a similar size and duration. Bank of Baroda is the cheapest at Sh70,794.
Absa’s major rivals including DTB and Equity Bank #ticker:EQTY meanwhile price a similar loan from Sh95,807 to Sh114,057. Absa was previously among the most expensive lenders.
Nearly all the banks have an interest rate of 13 percent or slightly below, with the divergence in the total cost of credit primarily based on differences in other discretionary charges.
The loan pricing estimates are derived from the cost of credit website developed by the Kenya Bankers Association (KBA) and which seeks to enhance transparency in the formal credit market.
The KBA says the estimates are a starting point for a prospective borrower interested in taking a loan, adding that contacting a bank directly will give the official loan pricing.
Absa’s Sh71,807 charge for the Sh1 million, one-year personal unsecured loan represents pure interest payments at a rate of 13 percent over the life of the loan.
The credit facility is repaid monthly, with the interest charged on a reducing balance.
Equity Bank also charges an interest of 13 percent or Sh71,807 but has a higher total cost of credit of Sh114,057 for a similar credit facility. This is due to additional charges of Sh42,250 including loan application fees.
The KBA says banks may also collect fees for other parties including lawyers, insurers and the Kenya Revenue Authority.Banks charging only interest, however, do not collect internal or third-party fees.Other big banks with a higher total cost of credit-driven by internal and external charges include DTB and I&M Bank #ticker:IMH , which will ask for Sh95,807 and Sh100,160 respectively for a similar credit facility.NCBA #ticker:NCBA will charge a total of Sh104,807, KCB #ticker:KCB (Sh107,207), Co-op Bank #ticker:COOP (Sh111,929) and Standard Chartered Bank Kenya #ticker:SCBK (Sh112,745).The pricing trends show that most big banks price their loans nearly the same, indicating minimal competition.Their huge lending capacity also means they are indifferent to the cheaper credit terms offered by the small institutions.Assuming more customers flocked to the cheap small […]
