Banks now say that according to the results of a consumer research they commissioned, the legislation may be harming the economy.
The lenders also warned that they will divert more funds to treasury bills and other opportunities in the forex market rather than give loans to borrowers.
The MP behind the rate capping law has accused banks of engaging in “blackmail and economic sabotage to force amendments to the law.”
Commercial lenders say they want the interest rate capping law scrapped, claiming that the legislation is hurting low income borrowers “hence defeating its intended purpose” in their latest push against the the Banking (Amendment) Act 2016.
Through their banking lobby, the Kenya Bankers Association (KBA), the lenders warned that they will divert more funds to treasury bills and other opportunities in the forex market rather than lending to borrowers, as they consider government debt less risky and more profitable in the wake of the rate capping law.
“I think the solution is to remove the law and consider some of the proposals that had been put forward by banks (prior to the new law) to address the issue of costly credit,” KBA chief executive officer Habil Olaka said on Wednesday.
The commercial banks say their research indicates that the rate cap is harmful to the economy.
“According to the consumer research we have commissioned, most bank customers are not necessarily borrowing or saving more because of the Act, which raises the question, is this Act helping or harming our economy?” posed Mr Olaka.
The architect of the rate capping law Kiambu Town legislator Jude Njomo has accused banks of engaging in “blackmail and economic sabotage to force amendments to the law.”
“There is a concerted effort by banks which have formed cartels to keep off credit from the public thus blackmailing parliament or the government into changing a law that protects Wanjiku,” claimed the MP on Wednesday.
“We shall not be blackmailed by people whose main interest is to sabotage the economy for their own selfish interests,” he warned.
KBA’s fresh assault on the banking law has also drawn angry reactions from consumer protection groups, with the Consumer Federation of Kenya (Cofek) secretary general Stephen Mutoro saying:
“It's irrational for bankers to wage a campaign against rate caps without offering an alternative… Reasons why the law was put in place have not changed. It's therefore inconceivable to want to make amendments without offering consumers and alternative.”
Fiercely opposed
Commercial lenders have been fiercely opposed to the Banking (Amendment) Act 2016 that came into force on September 14, introducing legal caps on interest rates.
The legislation sets the maximum lending rate at four percentage points above the Central Bank Rate (CBR).
It also sets the minimum returns payable by banks on customer deposits at 70 per cent of the CBR.
The CBR is currently at 10 per cent, meaning that banks are barred from charging interest on loans above 14 per cent.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
