CBK, banks mum on interest rate cap ruling

Kenya Bankers Association CEO Habil Olaka
NAIROBI, KENYA: The Kenyan banks are likely to issue a statement next week on the Thursday decision by the high court to declare interest rate cap unconstitutional.

The Kenya Bankers Association Chief Executive Officer Habil Olaka said the body would only comment after a full decision is released by the court next week.

“We expect to access the full ruling next week, thereafter we can comment on the issue,” said Olaka. In a phone call on Friday, the Central Bank of Kenya said it would comment on the development in an official statement without disclosing when the same shall be released to the public.

“We still don’t have a comment, but the bank will do so in an official statement at an ideal time,” said Wallace Kantai from Central Bank of Kenya.

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The court on Thursday nullified a law setting bank interest rate caps in a move likely to expose borrowers to expensive loans

High Court judges Francis Tuiyott, Rachel Ngetich, and Jacqueline Kamau on Thursday left borrowers with bank loans in the hands of MPs, who will either amend to save them from unregulated loan interests or wait for the end of cheap loans.

In the intervening period, the court ruled, the Central Bank of Kenya (CBK) will continue regulating the rates for 12 months after which the effect of the judgment made on Thursday will kick in.

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“Mindful of the possible ramifications and disruption on existing contractual relationships between banks and their customers, the court suspended the effect of the declaration for 12 months from the date of this decision to give the National Assembly an opportunity to reconsider the provisions,” the judges ruled.

The court ruled that section 33B (1) and (2) of the Banking Act, providing for CBK to regulate how much lenders can earn from customers, was vague.

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Judges also declared section 33(B) of the Act discriminatory against banks' CEOs, for providing a punishment in the event they breached the interest rate caps law.  

They observed that the section had left out other players in the loan - customers and even guarantors - who were also likely to breach the Act.

“The provisions of section 33B (1) and (2) of the Banking Act is vague, imprecise, ambiguous and indefinite. And insofar as the contravention of the provisions attracts penal consequences, the same violates Articles 29 and 50 of the Constitution. Article 29 (a) of the Constitution guarantees a person the right not to be deprived of freedom arbitrarily or without just cause,” the judges ruled.

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