Banks caught flat-footed as Uhuru signs law to cap interest rates
Kenyan bankers were caught flat-footed on Wednesday when President Uhuru Kenyatta signed into law the Banking (Amendment) Bill that seeks to cap interest rates on loans.
The head of state made the move, surprising many Kenyans who had expected him not to assent to the Bill.
He said he had consulted widely before appending his signature on to Bill.
“I have assented to the Bill as presented to me. We will implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms,” said the head of state in a statement.
The Kenya Bankers Association immediately said it welcomed the spirit of the move by the President and said its members would comply with the law.
“We however do not feel that an arbitrary rate cap is in the best interests of the majority of people and businesses that this law seeks to support,” said KBA in a statement.
“The reality is that there is little evidence from other countries that such interventions have helped the majority of citizens, and in a number of countries such laws have been reversed to promote financial inclusion.”
NOT MORE THAN FOUR PERCENT
President Kenyatta has been under pressure from various quarters to sign the Bill into law.
The Act, sponsored by Kiambu Town MP Jude Njomo, caps interest rates at not more than four percentage points of the Central Bank of Kenya rate, now at 10.5 per cent.
This means that once operationalised, it will be illegal for any bank to ask for interest rates of more than 14.5 per cent.
BANKS NEED TO DO MORE
“Despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent,” reasoned president Kenyatta.
“Banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.”
This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels.
In the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of these caps.