Commercial banks face another hurdle as Members of Parliament plot to restrict cash controlled by State agencies, just days after approving a law that denies financial institutions right to set interest rates.
The Public Finance Management (Amendment) Bill, 2019 seeks to restrict deposit and investment of surplus funds held by counties, parastatals and constitutional commissions to State-controlled banks.
That means out of the 41 active banks, only the Kenya Commercial Bank, Development Bank, Consolidated Bank and Post Bank would be holding project funds for government ministries, departments and agencies (MDAs) if MPs approve the Bill.
Under the Bill privately sponsored by Kikuyu MP Kimani Ichungw’ah, it will be illegal for MDAs to deposit or invest money in accounts not operated by State-controlled banks.
The Bill defines a State-owned bank as one in which government owns or holds at least 20 per cent of share capital. The National Treasury owns 23.5 per cent of shares in KCB, 85.8 per cent of shareholding in Consolidated Bank and majority shares in Development Bank and Post Bank.
Mr Ichung’wah says the Bill will ensure State has a trail of project cash in effort to tame corruption network that has infiltrated the public sector.
Only last week, MPs approved a Bill that pre-sets interest charges within four percent above the Central Bank of Kenya base lending rate. The Bill is a revised form of the rate cap law, which came into effect in 2016, significantly cutting banks’ earnings on loans and wrecking the bottom lines of small banks.
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