Commercial banks Tuesday scored big after the National Assembly failed to get the requisite numbers to veto President Uhuru Kenyatta’s reservations on the Finance Bill, 2019.
The president, in an October 16 memorandum to the House, refused to assent to the bill and instead recommended the repealing of Section 33B of the Banking Act, which capped interest rates.
In 2016, MPs imposed interest caps on commercial lending rates at four percentage points above the benchmark Central Bank Rate to cushion Kenyans from high loan costs and exploitation by the commercial banks through an amendment to the Banking Act introduced by Kiambu Town MP Jude Njomo.
The banks opposed the move, arguing that it would stifle the growth of small banks and hurt private-sector lending while making it easier for the government to borrow from the domestic market.
When the bill was discussed Tuesday, only 161 of the possible 349 legislators were in the House, meaning the issue could not even proceed to the voting stage.
The Constitution provides that at least two-thirds, or 233 of the MPs, must be physically present in the House before for it to veto the President’s memorandum.
The President’s reservations will be incorporated in the Finance Bill, 2019, to be taken to him for assent before the end of this week.
Earlier, the MPs had, through a simple majority but in chaotic fashion, amended the President’s text to cushion those already servicing loans acquired under the rate caps regime and those in arrangements with commercial banks for loans from being subjected to high interest rates.
Last week, the Finance and National Planning Committee, while considering the president’s reservations, threw in the towel over the MPs’ determination to maintain the rate caps.
The amendment sailed through by a simple majority after Speaker Justine Muturi said it fully accommodated the president’s wishes.
What this means is that commercial banks will enjoy the liberty to vary the terms on loans taken during the period interest caps were in force. It also means that there will be an increase in the repayable interest on loans, which is likely to lead to an increase in non-performing loans, as well as crowding out of investments and, consequently, reduced economic growth.
The president had argued that the law had led to a decline in economic growth and weakening of the country’s monetary policy.