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# Bank Lending Conditions

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by bm21, Jul 14, 2010.

1. ### bm21JF-Expert Member

#1
Jul 14, 2010
Joined: May 12, 2008
Messages: 774
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Bank lending rates are out to be a function of returns from alternative investments. For Commercial Banks, alternative investment is the investment in government securities such as Treasury Bills and Treasury Bonds. Treasury Bonds and Bills Auction Summary held on Feb 10, 2010 which is a typical prevailing performance of government securities is as follows:

2-yr Treasury Bond
Weighted Average Yield to Maturity (WAY) = 9.46%
Weighted Average Coupon Yield (WCY) = 8.05%

5-yr Treasury Bond
Weighted Average Yield to Maturity (WAY) = 9.52%
Weighted Average Coupon Yield (WCY) = 9.30%

7-yr Treasury Bond
Weighted Average Yield to Maturity (WAY) = 10.38%
Weighted Average Coupon Yield (WCY) = 10.23%

10-yr Treasury Bond
Weighted Average Yield to Maturity (WAY) = 11.79%
Weighted Average Coupon Yield (WCY) = 11.67%

Weighted Average Yield to Maturity (WAY) % per Annum for Treasury Bills is such that 0.64%, 3.35%, 3.92% and 6.36% for 35 days, 91 days, 182 days and 364 days Treasury Bills.

I understand banks have to add a certain margin over and above the prevailing coupon rate say +1.5% - +3% to get the lending rates for other private firms and individuals. Having said that, the question comes that:
1. Why do Bank lending rates uniform irrespective of loan tenure particularly for loan duration over and above 2 years?
2. Why do Bank prevailing lending rates ranges between 17 - 20%? If they you add a risk margin say of 5% for a 5 -yr Treasury Bond WAY you get 14.46%, this means a Bank loan to be repaid within 5-yrs was ought to be charged interest rate of not more than 15%, so why do rates still 18%?
3. Cost of funds to Banks such as NMB, AZANIA Bank, CRDB, BARCLAYS, STANBIC Bank and TIB are substantially low due to huge deposits they have, why do these Banks also restrict loan tenure to 5 years charged at more or less same interest rates as other junior Banks with limited deposits of 17 - 20%?

2. ### AnfaalJF-Expert Member

#2
Jul 24, 2010
Joined: Jan 19, 2010
Messages: 1,157