KCB Group has clarified that changes in the Central Bank of Kenya (CBK) interest rates do not automatically lead to an extension of existing loan repayment periods, addressing growing questions among borrowers following claims that some customers had their loan repayment periods extended.
The clarification comes after a social media post by Mutai Mtandao TV raised concerns about the treatment of customers whose loan repayment periods were allegedly extended following an increase in interest rates.
The post questioned why banks would extend repayment periods because of rising interest rates and what should happen now that interest rates have started declining.
In response to the concerns, K47 Digital News contacted KCB Group seeking clarification on whether the bank had extended loan repayment periods due to changes in CBK interest rates and whether borrowers should expect adjustments following the reduction in interest rates.
KCB responds to claims of extended loan repayment periods
In its response to K47 Digital News, KCB explained that changes in the Central Bank Rate (CBR) do not automatically translate into changes in the repayment period of an existing loan.
The bank noted that the impact of interest rate adjustments depends on the type of loan facility, its contractual terms and conditions, and the applicable interest rate structure.
According to KCB, borrowers with variable-interest-rate facilities may experience changes in their monthly repayment amounts when interest rates increase.
In some circumstances, the bank may also restructure loan terms, depending on the specific facility and the circumstances surrounding the borrower.
KCB stated:
“Changes in the CBK rate do not automatically result in an extension of a loan repayment period. However, for facilities with variable interest rates, an increase in interest may lead to a higher repayment amount or, in some cases, a restructuring of the loan terms, subject to the product terms and conditions.”
The clarification suggests that borrowers should not assume that every increase or reduction in the Central Bank Rate automatically changes their loan repayment schedule.
What happens when CBK reduces interest rates?
One of the biggest concerns raised by borrowers is whether banks should automatically shorten extended loan repayment periods following a reduction in interest rates.
For customers who previously experienced changes in their loan repayment arrangements, the question is whether the reduction in interest rates should translate into lower monthly instalments, shorter repayment periods or reduced overall borrowing costs.
KCB explained that interest rate reviews may affect three important aspects of an existing loan.
These include the monthly instalment, the total cost of borrowing and the repayment period.
However, the outcome depends on the structure of the particular loan facility.
This means that a borrower whose monthly instalment increases following an interest rate adjustment may not necessarily experience an automatic reduction in the repayment period when interest rates decline.
Similarly, a reduction in interest rates does not necessarily mean that a bank must immediately reverse every previous restructuring arrangement.
Borrowers should therefore examine their loan agreements and request clarification from their respective banks before assuming that their repayment schedules will automatically change.
