Bitter MPs threaten to introduce law to control bank interest rates

In what seems to be a deal gone sour, a section of members of parliament have threatened to reintroduce a law seeking to control bank interest rates.

The legislators — who are currently on recess — say Finance minister Njeru Githae’s promise in April that banks would resort to competitive interest rates has not been kept.

According to Gem MP Jakoyo Midiwo, this will be done through introduction of an amendment to the Finance Bill 2012 when Parliament reconvenes in August 7.

“Banks are not going to bribe MPs with Sh50,000 and rob Kenyans of their benefits the way they did the other time when we attempted to regulate them,” said Mr Midiwo.

A similar amendment proposed last year was voted out after the government convinced MPs that it would use other channels to compel banks to lower interest rates.

However, they were allegation of bribery and a claim that Treasury promised MPs a Sh3.7 million sendoff package it they dropped the motion, which had delayed the passing of the Finance Bill 2011 by over 10 months.

Consumers Federation of Kenya Secretary General Stephen Mutoro told the Nation that the MPs had confided in him that they felt shortchanged because Treasury had refused to keep its side of the bargain in giving them the Sh3.7 million sendoff.

“They feel this is sabotage by Treasury,” Mr Mutoro said.

However, Mr Midowo termed linking of the two as political, saying their current motivation was out of a realisation that the government had failed to rein in banks despite Mr Githae promise that banks would lower their rates.

To have the Finance Bill 2011 passed by Parliament, Mr Githae had asked MPs to act against banks if nothing changes after treating them to two expensive luncheons in Nairobi in April.

According to Mr Mutoro, they have raised the issues of banks’ operations with the Central bank of Kenya (CBK), and the Kenya Bankers Association even called them for consultations, but CBK and KBA have refused to honour the invitations or reply to their letters.

KBA chief executive Habil Olaka said he was not aware of the MPs’ intentions to cap interest rates. “We have not been informed of any of such plans,” said Mr Olaka.

He, however, said that banks’ response to interest rate changes is dependent on how fast the market reacts, adding that most banks had adjusted their interest rates downwards.

The developments would trigger another debate on the Finance Bill 2012 and possibly delay its enactment, just like the Finance Bill 2011, which was only passed into law in April 2012, four months after the December 31 deadline and the first of its kind in Kenya’s history.

Treasury was forced to shelve the Finance Bill 2011, which gives it legal backing, after Mr Midiwo introduced amendments to the Bill last year seeking to cap bank lending rates at four percentage points above the Central Bank Rate (CBR) and deposit rates at a minimum of 70 per cent of the CBR.

This came at the height of high inflation last year when banks were accused of orchestrating the weakening of the shilling through the forex market and charging high interest rates on borrowed loans, with a mismatch on interest paid on customer deposits.

The Treasury and banks, it is said, came up with a deal that would allow Parliament to pass the Finance Bill without amendments, but a simmering row over the MPs sendoff package might see a resurgence of the debate on capping interests.

Commercial banks also offered to transfer MPs existing loans to cheaper rivals — also known as mobility of collateral.