Accountants ask President Uhuru Kenyatta to pass rates law as banks make token cut

Mombasa Senator Hassan Omar (right) receives a present from (Institute of Certified Public Accountants of Kenya) ICPAK's Vice Chairman Julius Mwatu during ICPAK's workshop at Sarova Whitesands in Mombasa County. ICPAK  is of the considered opinion that the banking sector in Kenya has operated on an oligopolistic market mode, where credit pricing is not reflective of market fundamentals. (PHOTO: KELVIN KARANI/ STANDARD)

Accountants yesterday asked President Uhuru Kenyatta to sign the law that regulates interest rates, in the single
biggest independent endorsement by a professional body.

The Institute of Certified Public Accountants of Kenya’s (ICPAK) request came amid frantic last-minute efforts by banks to block the enactment of the amendments in a desperate appeal, 10 days after the National Assembly unanimously sought to cap lending rates.

In an unprecedented unity of purpose, all banking executives converged mid-morning yesterday to hand over their written promise of cutting interest rates to the Central Bank of Kenya in a seven-point agenda
of long-term action points.

“The Institute is of the considered opinion that the banking sector in Kenya has operated on an oligopolistic market mode, where credit pricing is not reflective of market fundamentals. Hence, the move to introduce interest rates ceiling is plausible," said Mr Julius Mwatu, the vice chairman of ICPAK. An oligopolistic market is one that lacks competition and that the few players present can fix prices at a specific level.

It is now only hours to the expiry of a 14-day window for President Kenyatta to either assent to the amendments passed by Parliament on Wednesday July 28, or return the proposed law to the House.

Already, Opposition leader Raila Odinga has voiced his views on the divisive matter and asked the President to stand with the masses by enacting the amendments.

Mr Mwatu said the accountants' body had evidence that interest rate control had worked elsewhere in the world, including France and Germany, describing the recent events by Parliament as "well-intentioned legislative measures".

He told off bankers, most being ICPAK members, who have been threatening that legislation of interest rates would have devastating outcome citing that price control in the country's petroleum sector had eliminated cartels.

Mwatu spoke after bankers staged a last-gasp plea to President Kenyatta to reject the amendments.

"We appeal to the (President) not to assent to the Bill," said Habil Olaka, the chief executive of the Kenya Bankers Association.

Commercial banks, which collectively booked Sh38 billion in pre-tax profits between January and March alone, are all members of the 46-member lobby group. "We believe that referral of the Bill back to Parliament will be the right thing to do," said Mr Olaka, before handing over a memorandum of understanding to CBK boss Patrick Njoroge.

Among the details of the promise was an immediate reduction of less than one per cent on new and existing loans, but is not a result of the respective banks' decision but rather a rate cut on the component of the lending rates determined by CBK.

Two weeks ago, the Kenya Bankers' Reference Rate was slashed by 0.97 per cent to 8.9 per cent, to offer borrowers the only relief as it results in an automatic cut on the overall cost of loans.

KBA Chairman Lamin Manjang, who is also the chief executive officer of Standard Chartered Bank, said apart from the CBK-induced reprieve of 0.97 per cent on lending rates, lenders had also agreed to immediately drop account closing charges.

However, Mr Manjang's bank has not been levying the "nuisance charge" on personal accounts while EcoBank levies Sh550 – which does not have any bearing on interest rates, anyway. On using the law to regulate lending rates, Manjang said: "The proposal to cap rates has a very noble objective but in practice it has very adverse consequences."

The accountants' body that waded into the interest rate debate for the first time yesterday, however, thinks it is a good way to protect consumers from high rates and make loans affordable to enhance economic growth. Dr Njoroge, who has expressed his objections to regulating interest rates, has long advised banks to voluntarily cut their cost of loans.

His counsel has, however, been ignored with the banking executives coming up with different reasons to defend the elevated interest rates.

And yesterday, Njoroge termed the high lending rates situation a "difficult issue" that had been simmering for some time before the National Assembly's most recent intervention.

KCB Group Chief Executive Officer Joshua Oigara said he was confident proposals by banks would yield the desired result of a permanent solution to lowering interest rates.