NAIROBI, Kenya, Apr 25 – Prime Minster Raila Odinga has urged banks to review their interest rates saying that the public is not comfortable with rates above 16 percent.
The Central Bank Rate (CBR) has remained at 18 percent for the last three months, causing interest rates to hit an average high of 30 percent, following volatile economic environment last year that saw banks raise their rates four times.
Odinga, who was represented by Public Service Minister Dalmas Otieno at this year’s Think Business Banking Awards, said the government was keen to uphold free market principles in the determination of interest rates.
“The government has no business controlling interest rates. But as banks, you must have the interest of your customers at heart and look more towards the sustainability your businesses over the long-term rather than in the short term,” he noted.
Addressing the broader macroeconomic issues afflicting the country to keep interest rates at a reasonable level, Odinga added, was necessary moving forward, through rationalizing government spending and reducing reliance on public borrowing.
“I am reminded that about a year ago, when benchmark interest rates were low and banks were extending credit at as low as 12 percent, nobody was complaining. What we experienced in the last quarter of 2011 when interest rates spiralled to over 20 percent was very chilling and we must not allow it to happen again,” he asserted.
He added that the spread for majority of banks is too high, urging local financial institutions to use self-regulation in closing the gap.
Interest rate spreads remain a key concern, now at 11.3 percent that was reflected in the good returns in capital for most banks that registered 34.6 percent for the industry in 2011.
Meanwhile, Equity Bank was named the best bank in Kenya at the awards on Tuesday night that sized up a wide and competitive field of local and transnational players.
Other category winners included Housing Finance for mortgage financing, Diamond Trust Bank for asset finance, Equity Bank for microfinance and KCB’s Martin Oduor-Otieno as CEO of the year, with Equity’s James Mwangi as the Lifetime Achievement Award recipient.