Equity CEO calls for review of interest rate cap

Players in the banking sector have called for a review of the interest capping law, five months after it was implemented.

This as banks say its current structure does not work as envisioned, forcing lenders to limit credit access to the private sector in favour of lending to the government.

Speaking on Citizen Business Centre, Equity Bank chief executive officer James Mwangi, become the first banking executive to call for the review, lamenting its effects on the growth of the economy.

“Every decision has outcomes and what we have started seeing is like the president predicted the outcome of that act and we are now seeing the consequences,” Mr Mwangi said.

The sentiments echo those made by the International Monetary Fund (IMF), warning of economic slowdown.

In Mr Mwangi’s view, banks have been forced to choose between lending to the public or the government, with government debt providing a better, risk free return for lenders.

“Banks facilitate the economy to be in motion, but now what we have done is to disconnect the public sector and the private sector. And essentially when the economy is disconnected we start seeing the consequences not just in banking but all other sectors,” he stressed.

In its review of the interest cap law, the IMF argued that controls are an ineffective tool to cut loan costs as the move locks out small borrowers, pushing them to informal lenders who are even more expensive.

The Central Bank of Kenya, at its latest monetary policy meeting, said it was still early days to conclude on the effectives of the law, calling for more time to review it.

But in the Equity chief’s assertion, the timing could not be any better to change the implementation of the law to allow market forces to dictate the direction interest rates take.

“Yes we have evidence it’s not working, why don’t we tweak.  it in the next one or two months we will have finance bill, really government can work with parliament to amend the law. Not necessarily though the act but through finance bill,” Mr Mwangi said.