Banks call for parliamentary dialogue over interest rates

Banks call for parliamentary dialogue over interest rates

After seemingly being spooked that president Uhuru Kenyatta had signed a bill to cap interest rates, commercial banks have called for engagement with parliament to work out a suitable way to lower interest rates.

Banks have maintained that capping interest rates will have a negative impact on the supply of credit, even offering a counter proposal to the central bank all in a bid to negate the need to legislate interest rate controls.

In a statement to newsrooms the Kenya Bankers Association (KBA) asked for an opportunity to engage with the Parliamentary Committee on Finance, Planning and Trade to come up with an acceptable plan.

“As we await the decision on the matter, the banking industry, through the Kenya Bankers Association, welcomes the opportunity to reengage with the Parliamentary Committee on Finance, Planning and Trade, towards responding to the concerns of the public whilst addressing the issue of interest rates in a sustainable way,” KBA said in a statement.

The bankers’ lobby group was reacting to reports on social media that the president had assented to the Banking Amendment Bill 2015 which seeks to cap interest rates at four percent of the central bank rate (CBR). The bill was presented o the head of state late on Monday and has 14 days to make his decision.

“There are statements being circulated on social media that indicate that His Excellency President Uhuru Kenyatta has taken a position on the Banking (Amendment) Bill 2015. These views are not official and remain unconfirmed,” the association said.

Lenders have over the last two weeks stepped up efforts to get the president to veto the bill, even drawing up a seven point memorandum of understanding, offering an alternative solution to capping interest rates.

Among the proposals put forth by banks include responding with immediacy in transmitting policy decisions made by the Central Bank of Kenya as well as setting up of a Sh30 billion kitty to lend to small and medium enterprises (SMEs) at 15 percent.

The banks now say there will also more openly disclose all charges and terms relating to a loan before borrowers sign contracts.

KBA wants the bill sent back to parliament to ensure banks are able to dialogue on a sustainable method to lower interest rates.

“We therefore believe that the referral of this Bill back to Parliament offers the stakeholders an opportunity to reach a long-lasting solution that supports Kenyans and builds our economy,” KBA said.

If assented to, banks will be expected to charge not more than 14.5 percent as interest on credit, based on the current CBR of 10.5 percent.

In a notice in the dailies, KBA announced that all banks had agreed to lower interest rates in line with the CBKs move to lower the Kenya Banks Reference Rate (KBRR) to 8.9 percent.

“Therefore all banks have reduced their variable rate loans and all new loan applications will be priced against the new KBRR benchmark rate,” reads the KBA notice.

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Story By Beatrice Eghwa
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