StanChart CEO says Interest cap hurting economic growth

Standard Chartered Kenya CEO Lamin Manjang. [Photo: Courtesy]

StanChart Kenya chief executive officer Lamin Manjang says the interest cap by the government has led to slow uptake of loans in the private sector.

According to the CEO, the trend is likely to hurt the economy’s development which is majorly boosted by the private sector.

Manjang said that the economic growth had declined from a double digit percentile to a 4 percent. The law allowed commercial banks to lend loans at a four percent interest of Central Banks rate of 10.5 percent.

In an interview with reuters, Manjang asked the government to consider removing the cap on interest rates for the country to experience credit growth rate by the private sectors. “The overall credit growth rate is still below five per cent. For the country to realize its developmental goals, the government needs to employ a more sustainable policy. From where I sit, right now the best course of action would be repealing the act,” said the CEO.

Treasury CS Henry Rotich had on June sent a proposal to parliament to remove cap on lending rates but the bill did not see the light of the day after MPs voted it out.

The cap which was sponsored by Kiambu Town MP Jude Jomo was implemented after the bill gained massive support from the law makers in 2016. He claimed that commercial banks were issuing loans to private sector at unreasonable rate.

The CEO said that lending rates are supposed to be determined by the current market force.

Bank revenues fell terribly in 2017 a situation led by a heightened electioneering period and drought in most areas of the country. “Banks had to revise their strategy after the cap and because of that we’ve had a better financial year in 2018 thus far. The good year is also attributable to cost reduction and automation,” believes Mr. Manjang.

Standard Chartered Bank Kenya is however optimistic that it will uphold its financial performance in H2 after it realized profits by a third in 2018.

Banks are supposed to set their own interest rates according to their risk assessments and issue loans upon their findings.