Banks promise not to take advantage of interest cap removal


Banks promise not to take advantage of interest cap removal
Kenya Bankers Association Chairman Joshua Oigara at a past banking sector function PHOTO | KBA

In Summary

  • Kenya Bankers Association Chairman Joshua Oigara said banks would price loans reasonably, and customers should not accept sudden increases in interest rate.
  • “The fear that we will be unreasonable is unwarranted as we have repriced ourselves in the last three years. The pricing by banks is not something you wake up and roll the dice on,” Oigara said.
  • NCBA Managing Director John Gachora says new interest rates will however be anchored on the prevailing market conditions which until now compose of lower yields on government paper, and contained inflation.

Banks have vowed not to go back to the exorbitant interest rates they were charging before the introduction of the rate caps which was removed on Tuesday.

Speaking on Wednesday at the re-launch of the micro-business targeted Stawi loan app, Kenya Bankers Association Chairman Joshua Oigara said banks would price loans reasonably, and customers should not accept sudden increases in interest rate.

“The fear that we will be unreasonable is unwarranted as we have repriced ourselves in the last three years. The pricing by banks is not something you wake up and roll the dice on,” Oigara said.

The lenders have anchored the expected retention of current interest rates on recent sector reforms that have by the bank’s account created order and transparency in the issuance of loans to clients.

In March this year, the commercial lenders adopted the Central Bank of Kenya (CBK) Banking Sector Charter of 2018 which sought to open up commercial lending to public scrutiny.

Among the taunted corrective measures by banks is the move towards risk based credit pricing and the open declaration of all loan servicing fees and commissions.

Already, Kenya’s largest bank by asset base; KCB, says customers with high risk profiles may only see a two to three percent hike in interest charges

“Banks have reached a new business model. We lend to current customers at 13% because we have accepted their risk profile as an industry. That will not change the next day,” noted the bank in a statement.

Nevertheless, the public distrust of commercial banks has only heightened in the post-rate cap environment as many fear a return to the previously exorbitant rates.

Even so, MPs opposed to the re-introduction of the free-enterprise regime in the credit market have vowed to stay fixated on the bank’s behavior in the post-rate cap while promising even tougher sanctions on the lenders in the eventuality of observed disobedience.

“I can promise banks that we will revisit,” noted the interest rate cap’s mastermind, Kiambu Town MP Jude Njomo earlier on Tuesday.

MPs handed back interest setting roles to banks on Tuesday in a ditched vote opening up the window for higher interest rate settings.

NCBA Managing Director John Gachora however says new interest rates will be anchored on the prevailing market conditions which until now compose of lower yields on government paper, and contained inflation.

“Banks will always price credit by market conditions. If the fundamentals hold, lending at one percent is possible but has to be sustainable,” he said.

It however remains to be seen where the macro-fundamentals turn given the lowered yields on government bonds have been primarily instigated by the very rate cap through the creation of excess liquidity enabling cheaper domestic borrowing by government.

For instance, the return on a 364 day Treasury bill fell to a near flat nine percent in the capping environment from a previous high of 13 percent as banks overwhelmingly favored the government’s debt counter.

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Story By Kepha Muiruri
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