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Kenya banks taken to court over interest rates

COUNTIES
By Kamau Muthoni | September 6th 2016

Banks might be forced to further lower interest rates on loans if a case filed by an activist is successful.

Banks have lowered their interest rates to 14.5 per cent in compliance with the new law but the petitioner, Okiya Omtatah, says that they are still duping their customers with an excess of 1.6 per cent.

“The banks are wrong to cap their interest rates using the CBR and not the Kenya Banks’ Reference Rate (KBRR), which is a benchmark rate prescribed by the Central Bank of Kenya for pricing all floating or variable or flexible interest rate (Kenya shilling denominated) loans or credit facilities,” he stated.

In papers filed in the court’s registry yesterday, Mr Omtatah claimed that the law required the banks to charge a maximum of 12.9 per cent, being the KBRR ?rate of 8.9 per cent plus 4 per cent profit margin, but they opted to use the Central Bank Rate, which is 10.5 plus the margin.

“The difference between the interest rates prescribed by law and what is charged by the banks is a whopping 1.6 per cent,” the case filed against Central Bank and Kenya Bankers Association read in part.

Omtatah said banks were still going against the law, and the industry regulator was turning a blind eye. He said the court should spell out whether the lenders should use KBRR or CBR to cap their rates on borrowers.

Lowest rate

He added that CBR was the lowest rate of interest the CBK charged on its loans to banks and so the lenders ought not hide under it to escape the interest rate bracket.

“It is incumbent upon this honourable court to put an end to any doubt as to what the law on interest rates is by authoritatively interpreting Section 33B(1)(a) and (b) of the Banking (Amendment) Act, to determine that the KBRR and not the CBR is the applicable base rate for capping bank interest rates under the Act,” he said. 

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