Treasury makes fresh case for rate cap repeal to MPs
SEE ALSO :State eyes Sh421 billion in new loans“Given the adverse impact of the lending rate capping on credit growth, the Finance Bill, 2019 has proposed to amend the Banking (Amendment) Act, 2016 by repealing section 33B. This will enhance access to credit, especially for SMEs and strengthen the effectiveness of the monetary policy,” said Mr Yatani told the committee. The presentation is part of a public hearing in which other stakeholders will also make their proposals to the committee before it tables the final findings to the House. Policymakers in the financial sector, including the Central Bank of Kenya (CBK) and industry lobby, the Kenya Bankers Association (KBA), have insisted the interest rate cap introduced by the Banking (Amendments) Act 2016 should be repealed. “The interest rate cap has constrained banks’ ability to lend to SMEs because lenders are unable to price their risk within the new regulation and this is why many have lost out on financing,” said KBA Chief Executive Habil Olaka in a previous interview.
SEE ALSO :Winners and losers in new spending planAccording to Treasury, the law has also seen a reduction of corporate tax owing to a decline in banks’ profitability. However, the Government acknowledges that banks have turned to other avenues such as State-issued securities to maintain revenues. For instance, commercial banks’ interest from government securities went up from Sh89.6 billion in 2016 to Sh102 billion in 2017, while income from fees and commissions went up from Sh65 billion in 2016 to Sh84 billion last year. Treasury also recommended merging of several State parastatals, including the Industrial Commercial Development Corporation (ICDC), IDB Capital and Tourism Finance Corporation (TFC) to establish the Kenya Development Bank (KTB) to assist in providing credit to small businesses.
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