Kenyan banks rally to lower interest rates amid cap threat

NAIROBI (HAN) August 10.2016. Public Diplomacy & Regional Security News. BY:Allan Olingo. Kenyan banks have moved to reduce the cost of borrowing barely days before the President Uhuru Kenyatta makes a decision on signing the contentious interest rates Bill.

This is after the banks, through the Kenya Bankers Association (KBA) umbrella body, submitted a memorandum of understanding to the Central bank with a view to bring down the rates.

KBA chief executive Habil Olaka said that the banks will effectively reduce the interest rates and notify their clients of the same immediately in line with the Kenya Bankers Reference Rates (KBRR) reduction that was done three weeks ago.

“Within the next one year, we will work on enhancing business models across the sector geared towards reducing ineptest rates for our customers,” Mr Olaka said.

If the Head of State endorses the Bill, lending rates in the country would be capped at 14.5 per cent based on the current Central Bank Rate (CBR) of 10.5 per cent.

The lenders have also proposed a raft of initiatives that will see the cost of loans come down including risk based lending that will see credit scoring of loan borrowers adopted.

The banks have also committed to boost lending through allocating $300 million (Ksh30 billion) to small- and medium-sized enterprises (SMEs) at concessionary rates that don’t exceed 14.5 per cent, with $10 million (Ksh100 billion) given to women and youth headed enterprises.

“We expect banks to start using the credit reference bureaus framework on credit scores together with the product type and loan tenures to start classifying their borrowers into either low, medium of high risk categories,” Mr Olaka said.

KBA chairman Lamin Manjang, who is also the chief executive of Standard Chartered Bank, said that these are some of the market driven prescriptions to bring down the cost of credit and effectively self-regulate.

“Enforced disclosures of interest rates and total cost of borrowing are some of the initiatives that are geared towards achieving these,” Mr. Manjang said.

The banks move is seen as reaction to the lawmakers threat to cap interest rates on a bill that is awaiting the presidents direction, on whether he will sign it into law or not. President Uhuru Kenyatta is expected to make a decision the bill before Friday this week.

“This memorandum can be monitored and banks can be held accountable. It is not a legally binding document, but when you make a commitment to the regulator, it shows commitment and that is what we are doing to the public” Mr Manjang said.




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