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Quick review of law capping rates not possible, say analysts

Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG
Central Bank of Kenya Governor Patrick Njoroge. PHOTO | SALATON NJAU | NMG  

The law capping interest rates is unlikely to be reviewed until the second- half of 2018 given the ongoing political stand-off in the country, analysts have said.

In a strong hint of changes to the law, Central Bank of Kenya (CBK) governor Patrick Njoroge last week said the preliminary findings of a joint study with the Treasury justified a repeal of the Banking Amendment Act 2016 because of its negative effects on the economy.

Analysts at Ecobank Africa however said changes to the law are unlikely to happen soon owing to the present political uncertainty caused by the nullification of the August 8 presidential election results by the Supreme Court on September 1.

“As the current political stalemate around presidential elections continues to unfold, it is unlikely that a review of the Act will be top of Parliament’s priority,” the analysts said.

They further pointed out that the rates cap law was a brainchild of the ruling coalition that has a majority in the current Parliament hence it may not be easy to marshal support to change it.

“It is only Parliament that can originate a review. Already, the MP who sponsored the bill, the Banking (Amendment) Bill, 2015, as it was referred, has in an apparent rebuttal to the CBK governor’s sentiments, stated willingness to rally parliament against such a move,” said Ecobank Africa analysts in a Kenya’s banking sector note.

The analysts said the Act may only require three amendments including imposition of the price-cap on fully secured products, removal of the deposit floors, and de-designation of the Central Bank Rate (CBR), the CBK’s monetary policy signal, as the base rate for purposes of the Act.

The Banking (Amendment) Act 2016, came into force in September last year, and it caps loan charges at four percentage points above the CBR, presently at 10 per cent, and requires lenders to pay interest of at least 70 per cent of the CBR on term deposits.

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