The Institute of Certified Public Accountants of Kenya (ICPAK) is in opposition to the plans to eliminate the interest rate capping law introduced in 2016 arguing that it is good for Kenya’s economy.
Kenyan banks have been pro-reviewing the law since it has caused them to incur losses. However, Julius Mwatu, the ICPAK chairman says that the reasons banks are giving for abolishing the rate cap law are unfounded as the advantages of capping outweigh the problems experienced.
During a press briefing on Kakamega County, Mwatu also said it was too early to establish the impact of capping interests on the various sectors of the economy.
“The ongoing debate on the effect of the Banking (Amendment) Act 2016 capping interest rates published by Central Bank of Kenya on the economy is healthy. However, it must be done with caution,” Mwatu said.
Stakeholders were been worried by the drop in private sector credit from 2.2 percent in April 2017 to 1.4 percent in July, a trend that then reversed to increase at 2.0 percent in October 2017.
Therefore, the accountants’ forum acknowledged that the concerns raised by stakeholders about the law are valid but that the proposed plans should maintain the original objectives of the law.
“Analysis from the Central Bank of Kenya’s Monetary Policy Committee report indicates that private sector lending had started declining in 2015 before the introduction of interest rates cap and could be attributed to other factors,” they said.
Mwatu said the stock gross domestic debt rose by Sh294.2 billion from Sh1,926.2 billion in December 2016 to Sh2,220.3 billion in December 2017. “Of these, Sh1,125 billion was attributed to commercial banks by December 2017,” he added.
The Monetary Policy Committee report from October 2017 said the reasons for the declining private sector credit were the weak performance of several sectors of the economy and the growing usage of alternative funding.
“We believe that the discussion to lift interest rate caps should be preceded by other mechanisms that will allow a self-regulatory regime such as the use of credit rating information,” he said.
The accountants also acknowledged the signing of the African Continental Free Trade Area (AfCFTA), a deal that would eliminate trade barriers and enable free movement of goods and services.
“In theory that should boost commerce, growth and employment and facilitate [the] realisation of Agenda 2063 and Sustainable Development Goals,” Mwatu said.