Banks react to arbitrary move to cap interest rates

The Kenya Bankers Association (KBA) has maintained that a cap on interest rates is unlikely to benefit a majority of the banking population.

While welcoming President Uhuru Kenyatta’s to sign the Banking Amendment bill 2015 into law, the banking lobby group said that interest rate control world over have never led to easy access to credit.

“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.  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,” KBA said in a statement.

Banks have over the last two weeks been on a massive campaign to sway the president away from signing the bill into law. At one point, commercial banks drafted a seven point memorandum of understanding presented to the Central Bank of Kenya (CBK) in an effort of offering a counter offer to capping of interest rates.

Among the proposals presented by banks included effective policy transmission in line with CBK moves as well as the creation of a Sh30 billion fund to lend to small and medium enterprises at favorable rates.

In making his decision, President Kenyatta however noted that banks are yet to show goodwill having never followed through with promises to address the high cost of credit.

KBA has said that 40 percent of borrowers are considered moderate, high and very high risk clients who would not benefit from interest rate caps.

According to banks these are people who borrow Sh200,000 or less. The likely scenario according to banks is that Sh18 billion in personal loans will be inaccessible with the move to control interest rates.