[ 2016-08-17 ]

Kenya’s finance minister gives his view on capping of banks’ lending rates
Kenya’s Treasury opposes a move by parliament to
cap commercial lending rates because other
measures being put in place will help bring down
borrowing costs over time, the finance minister
said on Tuesday.

Parliament passed changes to the banking law two
weeks ago to cap commercial interest rates at 400
basis points above the central bank’s policy
rate, now 10.5 percent. The changes are awaiting
presidential approval.

Henry Rotich, the finance minister, told Reuters
his ministry preferred to improve the transmission
of monetary policy signals to commercial rates and
the creation of a central registry for collateral
to cut rates, rather than capping them.

“Our approach in this issue is to deal with the
root cause of why interest rates are where they
are in Kenya,” he said.

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 in May, having
left it at 11.5 percent since July 2015.

Rotich said they were working to improve the Kenya
Banks Reference Rate (KBRR) to ensure banks were
pricing loans correctly.

Introduced by the government in 2014 to help rein
in high costs of loans by offering a benchmark for
banks to price their loans, the KBRR has been
criticised widely for failing to help bring down
interest rates.

“There is more room for refining the KBRR and
banks are working on ensuring that the margins
reflect the best pricing of loans,” the minister
said without offering details.

He said a law to establish a central registry of
collateral would be taken to parliament soon,
enabling borrowers to transfer their loans between
different banks easily and cutting costs of
securing collateral once it is passed.

“We think these measures are going to help to
bring down rates over a period of time,” Rotich
said.

Kenyan banks have reported rising profits in the
last decade, attracting foreign investors. Rotich
said the growth of the sector had helped to boost
the share of the population with access to formal
financial services to 70 percent.

“We don’t want to rock that boat … Anything
that reverses that would not be a good way to
go,” he said.

The central bank also opposes capping interest
rates saying it could restrict lending. It however
wants banks to lower their rates.

Rotich said the government’s budget deficit for
the fiscal year starting last month would be lower
than the 9.3 percent approved by parliament,
adding they would also raise money in capital
markets abroad to avoid putting pressure on local
rates by borrowing too much in the domestic
market.

“Our strategy is to diversify our sources of
funding so that we don’t borrow heavily
domestically,” the minister said.

Source - CNBC Africa

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