President Uhuru Kenyatta is this week expected to make a decision in regards to the bill presented to him by Members of parliament aimed at regulating banks’ lending rates. However, the Banking sector through its Umbrella body, Kenya Bankers Association has promised to take several measures to reduce the rates among them cutting borrowing rates by 100 basis points (1%) immediately, urging the president to reject the bill.
The banks agree that interest rates in Kenya are high,but they believe controlling interest rates is not the right decision. The Banks presented a memorandum of understanding to the Central bank with seven key proposals;
- Banks will reduce interest rates and notify their customers immediately in line with the 25th July 2016 KBRR reduction.
Within the next 12 months, the Banks have promised to work on enhancing business models towards reducing interest rates for the man on the street.
In order to make it easier for customers to shop around and transfer accounts from one bank to another, the bank CEOs have agreed to drop the customer account closing charges with immediate effect.
To enhance financial access for SMEs, the CEOs have committed to allocate KSh.30 billion towards this sector with KSh. 10 billion being allocated to women and youth-owned micro enterprises. The lending rates on this fund will be capped 14.5%. The Central Bank of Kenya said it will monitor the progress.
The Banks have also promised to set up a Sh.100 million technical assistance program for micro, small and medium-sized enterprises (M-SMEs) towards enhancing their ability to secure financing from banks.
In facilitation by the Credit Reference Bureaus, the association together with the Central Bank will partner on the Credit Information Sharing framework whereby banks will start to classify their borrowers based on risk; low, medium and high risk.
- In order to promote proper ethics and governance in the banking sector, the banks have promised to introduce a tiered regulatory framework, which includes self-regulation by KBA. Consulting firm KPMG has been contracted to research and develop the standards and governance framework based on best practice in 10 countries around the world. KPMG also will provide a phone and Web-based framework for the public to lodge concerns regarding industry practice.
CBK Governor Dr Patrick Njoroge while commenting on the bank’s MOU said “They have expressed a willingness to address the issues credibly and expeditiously, its the right direction”
Related;
President Kenyatta to make decision on Bill to Cap Interest Rates this week
ICPAK supports Regulation of Interest Rates, says banks can’t self regulate themselves
Central Bank says commercial banks should lower rates urgently
