Economy

Rotich opposes MPs’ bid to cap bank lending rates

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Treasury Secretary Henry Rotich when he appeared before Parliament’s Liason Committee on March 21, 2016. PHOTO | EVANS HABIL

Treasury secretary Henry Rotich has opposed plans by MPs to cap interest rates at four per cent above the Central Bank of Kenya (CBK) rate.

Mr Rotich told the Liaison committee that the Treasury and CBK were working to bring down the interest rates charged on loans by commercial banks and lending institutions.

“We have advised that capping interest rates is not a solution. If you fix it (interest rates), banks will check and look for people with high credit scores and lock out those with poor credit records,” Mr Rotich said.

“Banks will lend to blue chip companies. If you control prices then you will lock out people from accessing credit,” he added.

Mr Johnson Sakaja (nominated) sought to know the Treasury’s position on MPs fresh bid to cap interest rates through the Banking (Amendment) Bill, 2016 sponsored by Kiambu MP Jude Njomo.

Mr Njomo’s bid received overwhelming support by MPs during debate on the Bill that now awaits the committee stage before its goes for third reading and to the President for assent.

Mr Njomo seeks to regulate interest rates at no more than four per cent of the base rate set and published by the CBK.

The current rate is set at 11 per cent and should the Bill become law, banks would charge up to 15 per cent.

READ: MPs in fresh bid to rein in runaway bank interest rates

The MP is also proposing to peg the minimum interest granted on a deposit held in interest earning account to at least 70 per cent of the base rate set and published by CBK. Currently, those borrowing personal unsecured loans are paying up to 25 per cent.

Mr Rotich told MPs that interest rates have continued to come down over the last three month.

“We at the Treasury and CBK are working to bring rates down. Over the last three months, Treasury bills rates have come down to 8.5 per cent from 8.7 per cent in the last auction. They continue to come down because we have reduced government borrowing from domestic markets which takes interest up,” he said in response to questions by Mr Sakaja.

Mr Rotich said the interest rates cap Bills had come to the House a number of times since the Donde Bill of 2000.

“We need to deal with underlying factors such as domestic borrowing by national government. If we manage our fiscal position that we don’t borrow more locally. Interest rates will come down,” he said.