CBK vows to ensure banks slash rates

Kenya Bankers Association CEO Habil Olaka during a press conference on regulation of the banking industry in the country. CBK has said it will 'keenly' follow up to ensure that commercial banks live up to their promise to cut interest rates. (PHOTO: DAVID NJAAGA/ STANDARD)

Central Bank of Kenya (CBK) has said it will 'keenly' follow up to ensure that commercial banks live up to their promise to cut interest rates.

In a statement issued following the signing of a Memorandum of Understanding (MoU) on Wednesday, CBK Governor Patrick Njoroge said the promise made by lenders was the first on a long list of measures that would result in cheaper credit.

"This step will also allow for interest rates to be more responsive to market conditions," said the banking sector regulator, which has been advocating for lower lending rates.

And in fighting off the enactment of the proposals as going against the "principle of a free market economy", the bankers also pleaded with President Uhuru Kenyatta to reject the amendments and consider returning the interest bill to Parliament.

Banking executives entered the MoU promising a raft of measures that they anticipate would lead to a cut in interest rates, including a Sh30 billion fund to lend to small businesses at concessionary rates capped at 14.5 per cent.

Similar margin

Lending rates would also drop by 0.97 per cent at the end of August, following a move by CBK to cut the Kenya Bankers Reference Rate by a similar margin.

KBRR is the basis for the pricing of loans determined by the Monetary Policy Committee of the CBK, while other components of lending rates are determined by the individual lenders.

The promise by the bankers and intense lobbying seemed to have softened the MPs' stance until yesterday when they demanded the enactment of amendments that introduced capping of interest rates.

MPs said the promises would only be acceptable if they were anchored in law, rather than simply written agreements that are not enforceable.

Prior demands by the legislators were clear that the President needs to act in the public interest and immediately sign into law the amendments proposed by Kiambu MP Jude Njomo.

Habil Olaka, the chief executive of the Kenya Bankers Association, told the CBK governor that banks had committed to making better use of credit history in assessing borrowers' risk profile.

That, he explained, would ensure that borrowers who have a good credit history would be given loans at more competitive rates.