Central Bank warns lenders against ‘wild west banditry’

Central Bank of Kenya (CBK) Governor Patrick Njoroge has warned lenders against going back to their “banditry” ways of overcharging borrowers.

At the post-Monetary Policy Committee (MPC) meeting press briefing in his office yesterday, the governor described the pre-rate cap era as the “Wild West” where banks were free to whimsically charge interest rates.

“They are not going back to the same old, same old ways of the past, the wild west kind of banditry.” He told banks that rather than being obsessed with making short-term gains, they should look at ways of helping Kenyans.

“We expect shareholders to be more accepting of lower returns,” said Dr Njoroge.

He noted that there is a contest where every bank wants to beat the others in profitability, resulting in the high-interest rate regime. Njoroge said while bank profitability, when measured using return on equity, has gone down from the highs of 30 per cent, it is still relatively higher compared to other jurisdictions in the region.

Credit to the private sector grew by 6.6 per cent as of September. CBK had expected credit growth to the private sector to be much higher at the end of the year.

“We are happy that now, we don’t have the interest rate cap. We are happy that bankers can now do serious banking,” he said.

Njoroge said banks have already given CBK a plan, which they will be held accountable to.

He added there is a fear of getting into theRate-cap free environment, thus the need for consumers to be educated.

The MPC lowered the Central Bank Rate (CBR) to 8.5 per cent, down from nine per cent on Monday.

This has now set the stage for cheaper loans weeks after the interest rate cap was repealed.

Analysts are, however, wary that banks will self-regulate in the absence of the rate cap and bring borrowing costs down.