Deputy CBK boss nominee wants rates cap reinstated


Central Bank of Kenya Deputy Governor, Dr Susan Koech on February 28, 2023. PHOTO | LUCY WANJIRU | NMG

MPs should bring back a law capping interest rates to bring down the cost of loans, the nominee for the post of Deputy Governor of the Central Bank of Kenya (CBK) Susan Jemutai Koech has said.

Dr Koech also told lawmakers that the current interbank foreign exchange market had collapsed and that her vision is to put in place a functional and vibrant interbank forex market, bring down the cost of credit and oversee the acquisition and mergers of banks.

“I want to see a functional and vibrant interbank forex market. Right now, it is not working,” Dr Koech said during her approval hearings.

Manufacturers and businesses have complained that the shortage of dollars forced them to buy the greenback at prices higher than the official CBK’s average exchange rate.

Getting adequate dollars proved difficult for some traders due to banks not being willing to sell to each other, making it hard for smaller players to fulfil their orders from clients.

Appearing before the joint vetting panel comprising members of the National Assembly and the Senate Finance committees, Dr Koech proposed to Parliament to bring back the Kenya Banks’ Reference Rate (KBRR) which was introduced in June 2014 to enhance transparency in the pricing of credit as well as improve the transmission of monetary policy signals into changes in banks’ lending rates.

The KBRR, which was to help rein in the high costs of loans by offering a benchmark for banks to price their loans, was scrapped in 2016 for failing to help bring down interest rates.

“This joint committee of the National Assembly and the Senate should bring proper legislation to bring down interest to a single digit,” Dr Koech told MPs.

Should parliament adopt the proposal, then it will put legislators on a collision course with lenders who have always rejected calls to control interest rates.

“In my view, KBRR of 2016, which stopped commercial banks from charging interest of over four percent of Central Bank Rate should be revisited.”

“I am aware KBRR ceased to exist. I suggest that this committee should review it to ensure we have loans that serve Kenyans better,” she said.

Dr Koech told the vetting panel that the reduction of government borrowing in the domestic market will further help in the access to cheap credit to the private sector.

She said her vision is to see the government borrow concessional loans from the international markets as opposed to the domestic market.

“If we gradually reduce domestic borrowing by the government, banks will lend more to the private sector,” she said.

On mergers and acquisitions, Dr Koech said her vision is to see local lenders enter into deals both locally and elsewhere in the world.

“My third vision is to see more mergers and acquisitions to enhance balance sheets, cut operational costs and learn from best practices,” she said.

Dr Koech, who put her net worth at Sh425 million, said mergers and acquisition is a solution to ensuring efficiency within the banking industry.

“It is a Solution to ensure more stability in the banking industry. I applaud the CBK on the issue of Equity Bank acquiring Spire Bank and thereby averting a run on the bank that could have led to systemic risk,” she said.

“We can’t compare the number of banks that we have in the region to what we have locally. Why not go into more mergers and acquisitions to save on operations costs and have a more innovative banking sector?”

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