Money Markets
By GEORGE NGIGI, gngigi@ke.nationmedia.com
In Summary
- Commercial banks have until September 14 to implement the new interest rate caps.
Commercial banks have two weeks to comply with new
interest rate caps even as the wording of the law transmitted by the
Central Bank of Kenya (CBK) to chief executives remained vague and
confusing.
The CBK, whose guidance the Kenya Bankers Association (KBA)
had said was awaited on the matter of capping interest rates, Thursday
said the lenders have until September 14 to implement the law.
The regulator did not issue any guidelines leaving the banks to interpret the intention of the law.
“This is to notify you that the Banking (Amendment)
Act, 2016 has been duly published vide special issue of Kenya Gazette
dated August 31, 2016. The date of commencement is September 14, 2016,”
said CBK Governor Patrick Njoroge.
The wording of the Act raises queries on the
quality of work put into the law, despite its enormous economic impact,
as well as attention to detail by opposing parties.
“A bank or financial institution shall set the
maximum interest rate chargeable for a credit facility in Kenya at no
more than four per cent, the base rate set and published by the CBK,”
reads the Act.
Absence of the word “above” in the clause leaves
some to interpret that the new rate is supposed to be 10.92 per cent
assuming the base rate to be the Central Bank Rate (CBR) which is
currently set at 10.5 per cent.
On deposit rates the Act reads: “The minimum
interest rate granted on a deposit held in interest earning in Kenya to
at least seventy per cent, the base rate.”
This though has been taken to mean 70 per cent of the base rate with banks stating the new deposit rate will be 7.35 per cent.
Bankers have also questioned whether the base rate
it is refererencing is the CBR or the Kenya Banks’ Reference Rate (KBRR)
or a new rate to be introduced by the regulator.
The CBK was also silent on whether the law will
affect existing loans but a decision by some lenders to pass the benefit
of the new law to current borrowers seems to have set precedence in the
industry.
Confusion remains on whether microfinance banks are
also to be regulated by the law given that the amendment was made to
the Banking Act and not the Microfinance Act.
Exclusion of microfinance banks from the regulation
is likely to entice banks to open subsidiary microlenders so as to
continue offering loans in an unregulated regime.
Banks that have been silent on implementation of
the new law will now have to give directions to their customers on the
way forward in the next two weeks.
On Thursday Co-operative Bank, Barclays, DTB,
Guaranty Trust Bank and Chase Bank, which is under receivership, became
the latest lenders to announce they were lowering interest rate for
existing and new loans.
The KBA has also shifted from its previous position of
waiting upon guidelines from the CBK stating that its members would
lower interest rates immediately after the law is published.
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