New lending rates to hit long-term projects, CMA warns

On Wednesday, President Uhuru Kenyatta assented to the Bill capping interest rates defying pressure from banks that had rooted for self-regulation. The law now bars lenders from increasing the rate above 4 percent of the Central Bank Benchmark Rate currently at 10.5 percent. PHOTO: COURTESY

The Capital Markets Authority has warned that uncertainty in interest rates could affect financing for long-term projects in the country.

Paul Muthaura, the CMA Chief Executive Officer said volatility or uncertainty could force banks to reduce financing for long-term projects. The capital markets regulator said it was keenly monitoring the effects of the new law even as Friday shares of Equity Bank and Kenya Commercial Bank tumbled by about 10 percent.

He termed the drop in the value of the shares as 'reflex reaction' to President Uhuru Kenyatta's signing of the regulation to cap interests rates. "There is a lot of uncertainty in the banking sector in regard to the lending rates. These will affect the ability of these institutions to fund long-term projects but we are still monitoring the situation," Muthaura said yesterday in Mombasa.

He said the regulator was in close talks with other relevant authorities and if investors start to experience credit constraints they have put in place mechanisms to address it. "The country has for decades experienced challenges of the cost and access of credit. Credit ought to be available to spur economic growth," he said.

On Wednesday, President Uhuru Kenyatta assented to the Bill capping interest rates defying pressure from banks that had rooted for self-regulation. The law now bars lenders from increasing the rate above 4 percent of the Central Bank Benchmark Rate currently at 10.5 percent.

Speaking in Mombasa during a meeting with investors and other government agencies, Muthuara said investors should seek other ways to claw-back money to the economy. "A lot of work will be done in terms of coming up with regulations to implement the amendments in the Act but we are monitoring to see how it will affect the high risk borrowers," he added.

He said the country's infrastructure spending needs $4 billion (Sh376.6 billion) per year, but faces a deficit of between $2 billion to $3 billion (Sh188.3 billion to Sh282.5 billion).

He said Kenya can plug this deficit through Public Private Partnership model fashioned through several products in the equity market.