Hope for banks as Rotich says interest cap will be revisited

National Treasury Cabinet Secretary Henry Rotich has announced that the government is planning to “revisit” the interest rate capping law in a move that he argues will support economic growth by reviving lending to the private sector.

If introduced and adopted by the National Assembly, the changes to the Banking Act will boost the profitability of banks.

MEMORANDUM

The 'revisiting' of the law, that was engineered by Kiambu MP Jude Njomo in a popular amendment in 2016, was part of the changes in Finance Bill, 2018.

It was withdrawn after the CS realised that Members of Parliament were keen on shooting it down.

Though President Uhuru Kenyatta rejected the bill and returned it to the House, the proposed changes were not part of the memorandum on the bill.

Alego Usonga MP Samuel Atandi triggered the comments by Mr Rotich as he appeared before the Finance and National Planning Committee of the National Assembly on Wednesday.

The committee chaired by Kipkelion East MP Joseph Limo is considering the president’s memorandum on the bill and is on Thursday morning expected to table its report to the House.

“Are you now happy that the planned changes to the interest rate capping law were not part of the memorandum on the finance bill the president brought to the House?” Mr Atandi posed.

Mr Rotich promised the matter will be dealt with soon.

“We shall revisit this matter very soon. Let’s get over this issue (president’s memorandum) first,” he said.

BANK OPERATIONS

If the Banking Act is amended again, in the fashion of the CS, banks will once again be at liberty to set interest rates according to their own risk assessments and boost their profit margins.

Before the law was amended, some banks charged up to 18 percent interest with the borrowers, largely individuals and other entities, bearing the brunt of expensive loans.

The popular claim to amend the law, which requires the Central Bank of Kenya (CBK) to enforce lending rates by banks at a maximum of four percent above the base rate, has been premised on the fact that it inhibits the banks’ lending to small and medium-sized enterprises (SMEs).

The lenders have been uncomfortable with the rate caps law and have since increased their investment in government bonds and treasury bills.

They have argued that they cannot accommodate riskier borrowers within the set maximum interest rate that stands at 13.5 percent.

“In order to enhance access to credit and minimise the adverse impact of the interest rate caps on credit growth, while strengthening financial access and monetary policy effectiveness, I propose to amend the banking Act,” Mr Rotich said during his budget speech in June.