A bench of three judges faulted the lender, saying the amount charged to Santowels Ltd, a manufacturer of sanitary towels, was above what had been set by the Central Bank of Kenya.
Justices Hannah Okwengu, Asike-Makhandia and Jamila Mohammed further said the lender charged the interest rates at 19.5 percent, without the approval of the Minister of Finance.
The court noted that the bank was aware that the rate of interest was capped and it required the approval of the Minister for any variation or interest adjustments from time to time.
The Court of Appeal has directed Stanbic Bank #ticker:SBIC to refund over Sh10 million to a former customer who sued the lender for overcharging interest rates to loans advanced decades ago.
A bench of three judges faulted the lender, saying the amount charged to Santowels Ltd, a manufacturer of sanitary towels, was above what had been set by the Central Bank of Kenya in 1997, hence illegal.
Justices Hannah Okwengu, Asike-Makhandia and Jamila Mohammed further said the lender charged the interest rates at 19.5 percent, without the approval of the Minister of Finance.
The court noted that the bank was aware that the rate of interest was capped and it required the approval of the Minister for any variation or interest adjustments from time to time.
“The respondent was similarly governed by Section 44 of the Banking Act, which provided that no institution was allowed to increase its rate of banking or other charges except with the prior approval of the Minister,” the judges said.
The manufacturer told the court that Stanbic was its banker between 1993 and 1997 and it sought several overdrafts, which were granted at a variable interest rate of three percent above its base lending rate. The bank reserved the right to vary the base rate and the spread.
The company argued that the maximum rate that banks were entitled to charge its customers by law and as gazetted by CBK was 16.5 percent per annum on a reducing balance.
The court heard that banks were then supposed to obtain approval from the Minister of Finance before it could enhance the interest chargeable beyond what was stipulated by law.
The lender defended itself saying it executed its contractual duties with all due diligence and in accordance with the usual banking practices and customs and it honestly accounted for all the transactions in the manufacturer’s accounts.
