Stop blame game on rate cap, Treasury tells banks

Dr. Kamau Thugge Principal Secretary National Treasury

Treasury has dismissed banks’ assertions that the cap on interest rates is to blame for the worsening credit crunch to the private sector.

Principal Secretary Kamau Thugge said yesterday when the rate cap came into place in August 2016, credit to the private sector was already shrinking.

“The private sector credit cannot be fully explained by the caps. It was at four per cent when the rate cap law came into effect,” said Dr Thugge.

He spoke during a public forum on the budget proposals for the 2018-19 financial year at the Kenyatta International Convention Centre in Nairobi.

Not unique

He added that the slowdown in credit growth was not a unique phenomenon to Kenya, but was also happening in neighbouring Uganda and Tanzania where they have not adopted the cap on interest rates.

“The reason I try to delink this idea is that Uganda and Tanzania are experiencing a similar situation, so credit growth is low in all the three countries even though they do not have the rate cap,” he said.

Kenya’s private sector credit grew by 2.4 per cent in the 12 months to December 2017, slightly higher than the 2.0 per cent in October 2017.

In Uganda, average annual growth in private sector growth stood at 5.8 per cent in the quarter ended August  2017, down from six percent in the preceding quarter ended May  2017.