Banks dig in to fight off rates caps

March 15, 2012
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Acting Finance Minister Njeru Githae
NAIROBI, Kenya, Mar 15 – A standoff continues between local financial institutions and Members of Parliament (MPs) over the delayed Finance Bill that proposes to introduce regulation of interest rates.

Following an unfruitful meeting on Thursday, between the banks, MPs and acting Finance Minister Njeru Githae, Gem MP Jakoyo Midiwo, who introduced the amendment on interest rate caps said the matter would continue onto the Parliamentary floor for debate.

“The banks have refused to give us a solution to the Kenyans who negotiated their loans at 10 or 15 percent but now they are charged at 30 percent. I am not going to be withdrawing my amendment to cap interest rates,” he asserted.

The amendment seeks to cap the lending interest rates at no more than four percent above the Central Bank Rate (CBR) and deposit rates at 70 percent of the CBR.

Githae said the meeting however agreed that banks would be required to show their average weighted costs of deposits and funds every month to ensure transparency.

In addition, borrowers will be able to negotiate extension of loan payment periods, and liquidate loans prematurely without penalty, while interest rates on mortgage loans will now be held at a maximum of 19 percent.

Consumer loans however were noticeably left out of the agreement; to which Midiwo added that banks have acknowledged at least 70 percent of borrowers have been affected by the high rates.

Interest rates skyrocketed to 32 percent last November after the fourth round of hikes by banks since June 2011.

Githae said the move to cap interest rates is not the solution to giving consumers some reprieve from the interest rates, as it will lock out a large section of Kenyans, especially the low income bracket.

He added that the new measures will be enforced through the Central Bank of Kenya Governor’s Circulars until they can be anchored in law.

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