Banks plot new war over interest rates

KBA CEO Habil Olaka addressing media during the Banking Amendment Act. (Photo: Wilberforce Okwiri/Standard)

Kenyan banks have plotted to woo new legislators into scrapping the cap on interest rates once crucial committees are formed.

Committees including Trade, Finance and Planning that has the mandate to review the rate cap have yet to be constituted following the standoff over the repeat elections as warring political factions stall Parliament’s business.

The Jubilee side has only selected members for the House Business Committee, Justice and Legal Affairs Committee and the Ad-hoc committee on elections while the National Super Alliance has refused to name its members.

Kenya Bankers Association (KBA) says it will have to wait until after the elections to approach the august House for repeal of the law.

“We have to wait until the committee has been set up and then we will know who in particular to engage,” said Chief Executive Habil Olaka.

“However, we have maintained engagements with Treasury and the Central Bank of Kenya and we are aware of other independent parties who have been analysing the situation,” he said.

A consumer lobby group, on the other hand, has vowed to block any move to lift the cap unless regulators demonstrate that they will not allow banks to switch back rates to as high as 30 per cent.

“In the scramble for reversal of the law, both Central Bank of Kenya and the National Treasury have never stated if the fears which necessitated a regulated bank interest regime have since been mitigated. Consumers will not continue to finance corruption and inefficiencies within banks via inflated interest rates,” said Consumer Federation of Kenya Secretary General Stephen Mutoro.

Mr Olaka said although there were genuine concerns that the sector was charging exorbitant rates, capping was not the best solution.

“The solution was not good and we said it would lead to challenges, and what we said is unfolding,” he said.

Banks have denied credit to the private sector, with total loans shrinking by 1.5 per cent in the first seven months of 2017 – the first contraction in the last seven years.

Eliminate costs

Mr Olaka said stakeholders need to tackle transparency in banks, efficiency in land registries as well as speedy judicial process to eliminate costs that push up the price of loans.

Central Bank of Kenya Governor Patrick Njoroge has, however, urged lenders to change the way they do business so that they can convince Kenyans to back the removal of rate caps.

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