Reuters;
Kenya’s commercial banks should swiftly lower their lending rates and take steps to regain the confidence of their customers, the central bank said on Friday.
Kenya’s parliament has passed changes to the banking law, to cap commercial interest rates at 400 basis points above the central bank’s policy rate, a move opposed by the bank lobby and the central bank.
“It is urgent that commercial banks lower their interest rates in line with current market conditions and also act immediately to win back the trust of their customers,” the regulator said in response to questions from Reuters.
“This will allow the other measures to bear fruit and further lower interest rates sustainably.”
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Businesses often complain that high commercial lending rates, which can reach 18 percent or more, hobble corporate investment. Individuals say the high rates put home loans, for example, out of reach of many.
The average lending rate was 18.2 percent last month, compared with 15.8 percent in July last year, the central bank said. The central bank cut its policy rate to 10.5 percent last month, having left it at 11.5 percent since July 2015.
The amendment to cap rates was forwarded to President Uhuru Kenyatta, who has 14 days to consider whether to sign it into law. He has promised to consult widely before making a decision.
The governor of the central bank, Patrick Njoroge, published an opinion piece this week, arguing that banks needed to lower rates but that imposing controls by law might lead to credit rationing and was not the approach.
READ; Central Bank says Bill to Regulate interest rates will have adverse consequences
The central bank says if banks lower rates now, they will allow other reforms aimed at lowering rates, including enhancing information-sharing on borrowers from credit reference bureaus, to take root and support lower lending rates.
