Barclays Bank of Kenya is the latest lender to bring down interest rates in compliance with the Banking (Amendment) Act 2015. The Act requires lenders to cap interest rates charged on loans at no more than four per cent above the base rate set by Central Bank of Kenya.
“We have with immediate effect reduced the interest rates applicable for all new loans to 14.5 per cent per annum in line with the new law. Equally, we have increased interest rates applicable on new Zidisha savings accounts and new term deposits to a minimum rate of 7.35 per cent p.a.,” said Barclays in a statement sent to newsrooms.
Co-operative Bank of Kenya and Kenya Commercial Bank of Kenya had already complied by charging an interest rate of 14.5 per cent on new loans.
14 days to comply
Although a Bill becomes law immediately it is assented to by the President, it becomes effective after being published by the relevant Cabinet Secretary. According to the National Assembly Standing Orders, an Act of Parliament may provide that it will come into effect on a date to be notified.
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“In such cases, after the Act has received Presidential Assent, notification of the date of its coming into effect is given through a legal notice usually by the Minister for the time being in charge of the matters with which the Act is concerned,” notes Kenya Law.
Nicholas Abidha, an advocate of the High Court, said that sometimes the law does not have the effective date. In this context, the Cabinet Secretary has seven days to publish the law through a Gazette notice. Those affected have 14 days to comply with the provisions of the law.
He added that the lenders were simply engaging in a public relations exercise. According to him, lenders cannot purport to comply with a law before it has been published through a Gazette notice.
However, Institute of Economic Affairs Chief Executive Officer Kwame Owino said there is nothing wrong the banks are doing. “They (banks) can choose to wilfully comply even before the law has been published,” said Owino, adding that they can always recalibrate their rates if the published base rate is different.
Kenya Bankers Association CEO Habil Olaka said banks were simply being ‘proactive’ to avoid the legalese that has characterised this law. He said banks would recalculate the bills in line with the prevailing rates when the law is published.
But Owino said it was unlikely that the rate used will be different. The three banks that have so far complied have used a base rate of 10.5, which is the current Central Bank of Kenya benchmark rate.