Gen- dude,when I read your query,it reminded me that English is not my 1st language and neither is it yours judging by the query. What do u mean by banks sustaining lending rates? Did u mean maintain lending rates? And by lending rates,do you mean the interest rates they charge customers or the interest margin they earn net of funding cost? Or were u talking about the percentage of loan growth? By costs,do u mean funding costs or operational costs? In anycase,I'll attempt to frame the query and answer it and if its not the right one,lemme know and I'll respond l8r. Assuming u wanted to know how banks maintain their interest margins,most banks always lend with reference to two things in the main: 1. Funding cost: i.e. how much they have to pay for deposit;in the interbank lending and from CBK as lender of last resort. Clearly banks will charge an interest rate that gives them a sufficient margin above this funding cost. There is also stuff about mismatch,but its too completed to go into here. 2. Operational costs: Most banks will always lend such that amount of loans multiplied by interest rate charged on those loans less the banks funding costs less operational costs (staff,office,it) are more than covered. Banks also lend with reference to the credit quality of the customer as this dictates the amount of regulatory capital they need to hold. But they also consider the quality of loans they already hold. Hope that long-winded answer helped and answered your question. www.mjengakenya.blogspot.com

Kizee- when Ndungu was appointed I thought he looked and sounded like a certificate economist. Many academic papers but no idea how a real economy functions. Kenya is not in 2003 when merely increasing money supply jazzed up the economy. We've issues that require fixes away from CBK. The problems as I see them. GoK overspend; agriculture supply-side; world-wide economy and an overhang of bad debts in the banking sector. Only one of those is outside of our control. Unfortunately,they also require balls to resolve. If i was in the job for 12 months I'd slash cabinet to 20 posts and make cabinet and assistant minister positions taxable. Saving and generating around Ksh200m per yr. I'd slash defence spending by ksh10bn to Ksh34bn and put Ksh6bn of it towards agriculture subsidies 4 fertiliser,seedlings,employ agriculture officers. Ksh4bn would go towards tre planting via CDF. I'd install tolls on main roads into Nairobi and use the raised funds to subside KDN-type company based solar projects. I'd institute a polluter's fine 4 the companies carelessly letting stuff flow into Nbi river and others.I'd close down all councils that are not self-financing. I'd rationalise the whole district thing. Close some down and ofcourse get rid of division officers. www.mjengakenya.blogspot.com

The main souce of banks profit is interest income. Banks get funds from CBK at the CBR rate,currently at 7.75% or attract deposits at 5%. Then lend to get their margin. The spread is higher if they lend to the private sector,but banks prefer public sector lending (govt securities). What is driving this appetite for govt securities? .......many say risk factor. Are there other factors?

Kenya says no political meddling in financial sector The thicker the thigh the sweeter the pie.

CBK ignoring warning signs in the banking sector The thicker the thigh the sweeter the pie.