advertisement

News

Interest rate cap review to be easier in 2018

From left: KBA director of communications Nuru Mugambi, CEO Habil Olaka and director of research Jared Osoro during a media briefing in March on the impact of rate cap law. FILE photo | nmg
From left: KBA director of communications Nuru Mugambi, CEO Habil Olaka and director of research Jared Osoro during a media briefing in March on the impact of rate cap law. FILE photo | nmg 

The renewed agitation by the banking industry for a review of the rate cap law could meet less political resistance from lawmakers as both sides take stock of the far-reaching effect of the law on the economy and the banking industry.

Standard Bank Group (Stanbic) #ticker:CFC chief economist Goolam Ballim said the rate cap law has served a healthy lesson to both the authorities and the financial sector — showing that banks cannot afford to be selective in terms of the credit opportunities they pursue, while the authorities will have realised the potency of accessible and open credit channels in driving the economy.

“The fact that credit growth has plummeted does suggest that a review through a consultative process would be encouraged, possibly in 2018. The financial services sector will also readily acknowledge that their credit approach to the economy needs to be more inclusive as opposed to vigorously seeking near-term profits,” said Mr Ballim on the sidelines of the Global Business Forum Africa 2017 in Dubai.

“Kenya can be safely judged to be a fairly liberal market economy, and this market based ideology will prevail, naturally drawing towards a rational economic solution that politicians and the financial markets will find sensible, pragmatic and in the interests of the broader economy.”

Although the rate of growth in credit to the private sector was already declining in the months leading up to the enactment of the law in August last year, the fall accelerated as banks effectively stopped lending to customers deemed risky, touching a low of 1.7 per cent in the year to last September.

There have been renewed efforts to have the law revised, led by banks, which in a report released by industry lobby Kenya Bankers Association (KBA) last month said the level of loan disbursements between August 2016 and June 2017 dropped by nearly a third to 750,000 from 1.1 million, even as a larger number of Kenyans applied for loans due to lower interest rates.

The banks have seen their earnings drop as a result of the reduced lending, even after they turned to government debt as a fallback.

advertisement