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Commercial banks begin marketing loans to customers

loans
The removal of the rate cap is seen as a major win for banks. FILEM PHOTO | NMG 

Commercial banks have started marketing retail loans to customers following the removal of the legal caps on borrowing of four percentage points above the benchmark rate.

“Dear Customer, you qualify for a cash advance of Sh392,000,” wrote Stanbic Bank in one such notice.

“Kindly visit your nearest branch to apply and get funds into your account.”

More banks are expected to begin pitching loans to customers following the removal of the legal cap and the crash of the Treasury bill yield to just over 6.3 percent.

The removal of the cap is seen as a major win for banks, which had blamed the interest rate-limiting law for the slowdown in their profitability.

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President Uhuru Kenyatta has criticised commercial banks lending policy “which profiles small enterprises as “high risk” to deny them credit.”

He signed into law the Finance Bill 2019, which effectively repeals section 33b of the Banking Act saying the removal of the legal caps on borrowing would allow for credit flow to the economy. The section provides for the capping of bank interest rates.

“The repeal of section 33b of the Banking Act is expected to enhance access to credit by the private sector especially the micro, small and medium enterprises as well as cut out exploitative Shylocks and other unregulated lenders,” said his office in a statement.

There are fears that the removal of the cap will expose borrowers to costly lending rates, which had touched a high of 25 percent before the introduction of the ceiling.

But banks have pledged not to go back to the exorbitant interest rates they were charging before the introduction of the rate cap, removed last week.

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