MPs, bankers talks on interest rates hit snag

Talks between bankers and MPs seeking to fix interest rates collapsed on Thursday.

A four-hour meeting at the Serena Hotel in Nairobi attended by the Central Bank Governor Njuguna Ndung’u, acting Finance Minister Njeru Githae, Gem MP Jakoyo Midiwo and a host of MPs as well as bank representatives failed to broker a deal.

“Banks have refused to give us a solution as promised on how to protect Kenyans who already have loans from paying 30 per cent interest yet they borrowed expecting to pay 15 per cent. I will, therefore, not withdraw the amendment to cap interest rates,” Mr Midiwo said.

The latest development means the fate of banks lies with Parliament. Mr Midiwo said had no choice but to rally MPs to amend Finance Bill to fix the maximum lending rates, when the Bill comes to the floor of the House.

However the parliament showdown was put on hold after the introduction of the finance bill was deferred.

The proposed law also gives government the legal mandate to charge tax and a further delay in its legislation makes it illegal for The Treasury to levy new taxes introduced in this year’s Budget.

Mr Githae, who gave conflicting statements on what transpired at the meeting, said it was agreed to fix interest rates charged on mortgages at 19 per cent.

“We agreed that banks will be pegging their lending rates on the Central Bank Rate and there will be no commitment or application fees.

“This will give us only one rate to compare what banks are charging,” he said.

He had earlier on said that they had agreed to fix interest rates at six per cent above the Central Bank Rate only to deny it minutes later.

It is understood that banks changed their position based on the percentage of their borrowers who were affected by the rise from 25 per cent to 30 per cent.

“They are now telling us that the percentage of those who had borrowed loans that were affected is now 70 per cent,” Mr Midiwo said.

Mr Githae is expected to table the delayed Finance Bill in the House in its next sitting.

The amendment seeks to cap the lending interest rates at not more than four percentage points above the Central Bank Rate and deposit rates at 70 per cent of the rate.

The Central Bank Rate stands at 18 per cent, meaning that banks could be forced to charge a maximum of 22 per cent interest on loans.