President Uhuru Signs Into Law Banking Bill Capping Interests To 4pc Of Central Bank Rates

President Uhuru Kenyatta

Finally, after bustles and tussles around the matter with the Bankers pleading with the President not to sign into law the Interests rates amendments, Uhuru finally inked it into law. On July 28, 2016, the National Assembly passed the Banking (Amendment) Bill, 2015. The Bill intends to regulate interest rates that are applicable to banks’ loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits. The bill proposed a ceiling on loans at no more than four per cent of the Central Bank of Kenya’s recommended rate.

The Bill was then forwarded to the President for approval. “Since receiving this Bill, I have consulted widely, and it is evident to me from those consultations that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks. These frustrations are centred around the cost of credit and the applicable interest rates on their hard-earned deposits. I share these concerns.” Says the President.

This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels. In the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of these caps. In those instances, banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.

Despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent. Banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.

The President has assented to the Bill as presented. The Government will now implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms. This law is a win for borrowers who’ve had to repay dearly given existing borrowing rates as high as 21%. Now that the Bill will Cap interest rates at 4% above Central Bank Rates that is currently at 10.5%, Interests rates are expected to go down to 14.5%