Uhuru says has noted concerns on bid to cap bank lending rates

President Uhuru Kenyatta at a past event. PHOTO | FILE 

By KIARIE NJOROGE

In Summary

• President Uhuru Kenyatta will consult extensively before making a decision on whether to assent to the Bill or refer it back to Parliament.
• While he was the Finance minister, Mr Kenyatta in 2011 was opposed to a similar attempt by Parliament to cap interest rates saying that such legislation can have impact on other economic sectors.

State House says President Uhuru Kenyatta has noted the concerns of the Central Bank of Kenya (CBK) and bankers as the country awaits his decision on a Bill capping bank interest rates.

State House spokesman Manoah Esipisu on Sunday said that Mr Kenyatta will also consult extensively before making a decision on whether to assent to the Bill or refer it back to Parliament.

The CBK and the Kenya Bankers Association have opposed the attempt by Parliament to cap interest rates, saying this will have adverse effects including promotion of informal lending channels like shylocks.

While he was the Finance minister, Mr Kenyatta in 2011 was opposed to a similar attempt by Parliament to cap interest rates saying that such legislation can have impact on other economic sectors.

“It (Banking Amendment Bill) is yet to be formally transmitted to the President but when he finally gets it, he will spend time consulting extensively on the provisions before applying his mind and making a decision,” Mr Esipisu said.

READ: Eyes on Uhuru as MPs pass law capping cost of loans

If Mr Kenyatta immediately signs the Bill into law, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent. That would be significantly different from current average lending rate of 18 per cent.

The Bill, which was passed on Wednesday, also pegs the minimum interest rate payable on deposits held in interest earning account at 70 per cent of the CBR — meaning at current rates depositors would earn an interest of 7.3 per cent on their cash.

CBK, the banking sector regulator, has warned that if the Bill is signed into law, it would lead to inefficiencies in the credit market, credit rationing, promotion of informal lending channels, and undermining the effectiveness of monetary policy transmission.

The Constitution provides that the President can assent to or send the Bill back to Parliament indicating his reservations.

If Parliament rallies a two-thirds majority, the House can overrule the President’s objections and the head of State would have no option but to sign it to law.