CBK recommends adoption of risk based lending approach by SMEs

Central Bank of Kenya governor, Dr. Patrick Njoroge. [Photo: Courtesy]

Central Bank of Kenya governor, Dr. Patrick Njoroge still holds the idea that the law on capping interest rates should be changed to allow banks issue loans based on risk based assessment.

Currently the law capping interest rates stands at four percent above CBK’s rate which Njoroge says is harming the economy.

“It is good they have started to acknowledge the contribution of SMEs to the economy. It is sad that some policies they make are destructive,” Dr. Patric Njoroge held.

Njoroge was speaking during a press conference in support of parliament’s decision to review the lending rates to the private sector.

Gatundu South MP on January, proposed the review of 2016 Banking Act through a letter to the National Assembly Speaker, Justin Muturi to enable SME’s determine interest rates on basis of risk assessment above CBK’s cap.

Kuria suggests that commercial loan interest rates should be upheld for low risk customers with negotiations of a maximum of six percent above the lending cap for Small and Medium Enterprises (SMEs).

On Tuesday, Njoroge said that the credit risk for banks was easing but he cautioned banks against reckless lending.

Bad debts among Kenyan banks jumped to 12.4 percent of total credit last year, the highest level in more than a decade.

Policymakers held the central bank rate at 9.0 percent on Monday, citing the vibrant economy and benign inflation.