Legislators join forces in bid to rein in rogue banks

Members of Parliament have given banks a jolt after they ganged up to approve long jail terms for chief executives who violate proposed legislation that seeks to cap banks’ interest rate charges.

Under the new changes made to the Banking (Amendment) Bill 2015, chief executive officers of the country’s banks will be imprisoned for terms not less than one year for breach of new regulations contained in the proposed law.

The provisions in the new legislation state that banks shall not charges interest above four per cent of Kenya Banks’ Reference Rate (KBBR), and that customers will be entitled to interest of up to 70 per cent on their deposits.

“A person shall not enter into an agreement or arrangement to borrow or lend directly or indirectly at rates in excess of that approved by law... a bank or financial institution that contravenes the provision commits an offence and shall be liable to a fine of not less than one million shillings.

“...in breach, the CEO shall be imprisoned for a term not less than one year,” reads the new provision introduced yesterday by the Bill’s sponsor, Jude Njomo (Kiambu Town).

The provision to punish bank chiefs was the only new introduction in the amendment after the House Finance Committee told the House that it had no changes, which means that it supported the Bill’s provisions.

“We were under a lot of pressure from banks, but we categorically told them that we will not go their way,” said Iringo Kubai (Igembe Central), a member of the Finance committee.

MPs ganged up to support the proposals, which may force banks to seek President Uhuru Kenyatta’s intervention by denying assenting to the Bill.

“The object of this Bill is to provide a mechanism for regulation of banks and financial institutions’ interest rates through the introduction of ceilings. The Bill proposes to put a cap on the rate of interest charged for loans and to fix the minimum rate of interest income that such institutions must pay to depositors,” the Bill partly read.

Banks representatives did not appear before the Finance committee to give their views on the provisions in the Bill despite a public notice to do so.

“Kenyans are suffering. Nairobi is bad, but the countryside is even worse since interest rates are stifling devolution. Banks are here to help create employment, but all the profits they are getting are finding their way to the banks,” said Deputy Leader of minority Jakoyo Midiwo (Gem).

This is not the first time that members of Parliament have moved to cap interest rates. In early 2000, the then MP for Gem Constituency Joe Donde was the first to move a Bill to cap interest rates. The Central Bank of Kenya (Amendment) Bill 2000, popularly known as the Donde Act, was successfully moved in Parliament.

The law had imposed a spread of four four per cent as a ceiling between lending and the 91-day Treasury bill rates. Deposit rate was also supposed to be no less than four percentage points below the prevailing T-bill.

A Court of Appeal decision in 2001 led the banking industry to ignore the curbs in the Donde Act commencement date.