FITCH: Loan rate cap, deposit rate floor hurt small banks

LONDON: Smaller Kenyan banks are bearing the brunt of the impact of the cap on loan rates and the floor on deposit rates introduced in September 2016, and may become takeover targets or candidates for consolidation, Fitch Ratings says.

All banks have suffered a reduction in spreads since the government capped loan rates at 4 percentage points above the central bank's benchmark rate (CBR - currently 10 percent), and placed a floor of 70 percent of the CBR on deposit rates, leading to falling interest income from loans and rising funding costs.

The full impact on net interest margins and profitability will not be seen until later this year but first quarter of 2017 results give a clear indication of reduced margins.

“We believe the large and medium-sized banks (based on the regulator's classification of the sector) are better positioned to face these threats.”