In slightly over a year since the rate caps were introduced, credit has contracted on a month-on-month basis, only growing by 1.7 per cent on a yearly basis
"Year-on-year credit growth is at 1.7 per cent, but month on month we are on a negative territory," Jared Osoro, KBA's director for research and policy said at a briefing on Thursday.
The interest rate cap has had an unintended effect of slowing credit growth, with demand slackening on the back of a weak economy, a report released by the Kenya Bankers Association (KBA) showed on Thursday.
In slightly over a year since the rate caps were introduced, credit has contracted on a month-on-month basis, only growing by 1.7 per cent on a yearly basis
"Year-on-year credit growth is at 1.7 per cent, but month-on-month we are on a negative territory," Jared Osoro, KBA's director for research and policy said at a briefing on Thursday.
"There has been unintended consequences of this law...credit growth has been affected. The contributory effect of the rate cap cannot be understated", Habil Olaka, the KBA chief executive officer said.
Electioneering period
He noted that the long electioneering period had also adversely affected banks: "We had not anticipated the extended period of electioneering where the election period has sort of become a career," he said.
In September 2016, the government capped commercial lending rates at four percentage points above the 10 per cent central bank rate and also imposed a minimum deposit rate of 70 per cent of the benchmark rate.
The central bank governor, Patrick Njoroge, said last month that the rate cap law could be revised to allow banks a “free hand” in setting interest rates on loans but in a better regulated environment.
He, however, did not disclose when this change is likely to happen.
Reversal
Industry players expected the reversal to happen after the Aug 8 election, but subsequent nullification of the presidential results followed by a charged political environment has thrown a curve ball to those expectations.’
A number of banks have attributed effects of the rate cap to their dismal performance this year, but data released by the central bank in June showed that there was very little adverse effect that could be attributed to the interest rate cap.
There has been a general slowdown in the country’s economy occasioned by prolonged politicking after the Presidential election was annulled by the Supreme Court on Sept 1.
A fresh election is scheduled for Oct 26.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
