Banks survived the latest bid by Parliament to control interest rates without making any concessions, dashing borrowers’ hopes for cheaper credit.
Majority of legislators who contributed to the debate on the Finance Bill which was passed on Thursday night said the amendment proposed by the MP for Gem, Mr Jakoyo Midiwo, would do more harm to Kenya’s financial sector than good.
Unlike last year when the MPs pushed banks to sign agreements on disclosure of their cost of lending, this time the lenders escaped the attempt to control their profit margins without making a single concession.
“There were no negotiations, just the Parliamentarians voted on what they thought to be logical; there wasn’t time to discuss,” said Habil Olaka, chief executive of the industry lobby, the Kenya Bankers Association (KBA). The amendment proposed that State-owned entities be mandated to bank only with financial institutions where the Government has a stake and in return they lend to the public at an interest rate not exceeding four percentage points above the Central Bank Rate (CBR).
The amendment was defeated in a vote by acclamation.
This was the second time Mr Midiwo was moving an amendment to control lending rates. Last year his proposal to cap lending rates at four percentage points above CBR and set deposit rates at 70 per cent of CBR was also defeated in Parliament.
The amendment, which came at a time when lending rates had nearly doubled in a span of six months, was popular with the legislators.
It forced the Government, which was opposed to regulating the banks, to withdraw the crucial Finance Bill from debate for fear that it would pass with the amendments. There were, however, claims that MPs were compromised to vote against the controls. Commercial banks agreed to enhance their self-regulation by being transparent on pricing, sharing of positive borrowers’ information allowing creditworthy individuals to bargain for better prices and to ease the transfer of a collateral from one bank to another.
“The intention may be to protect people who borrow from government banks but it’s a double edged sword for investors who are the same Kenyans who are shareholders,” said Kipipiri MP, Amos Kimunya, while opposing the amendment on Thursday.
Government has shareholding in three commercial banks—KCB, National Bank and Consolidated Bank. Consolidated is the only one which is fully owned by the State. In KCB the government has a 17.64 per cent stake and a 22.5 per cent shareholding in NBK.
Parliamentarians questioned the infrastructural ability of the three banks to distribute social funds such as those of youth, women and other disadvantaged groups.
Mr Midiwo however held that the system he was proposing had worked in other countries, citing Brazil as an example; where public funds are distributed through State-owned banks.
Called a communist
“I tried to cap rates and I was called a communist now I have adopted the Brazilian model; the government has responsibility to protect Kenyans whose interest it is holding in this banks,” said Mr Midiwo.
The capacity of the banks to offer loans to the public entities was also put into question.
“Already some public entities have taken loans in private institutions which offer lower rates. Are we saying all those loans are cancelled and are taken over by government banks,” posed Charles Kilonzo while opposing.
Bankers had warned that the passage of the Bill would affect liquidity distribution in the market with government institutions forced to withdraw their cash from private banks.
Some of the banks that would have felt the pinch of such withdrawals include Co-operative Bank, Equity, Citi Bank, Barclays, NIC, Stanchart and CBA, with an estimated volume of Sh124 billion being moved.