KCB Group has welcomed the decision by the National Assembly to lift the cap on interest rates.
The lender’s Chief Executive Officer (CEO) Joshua Oigara said customers should not expect a sudden increase in the interest rates following the amendment of the Finance Bill, 2019 to accommodate the President’s Memorandum.
“The regime of the 20% interest rate is long gone. The macroeconomic and business environment where we are today does not at all support an environment of high rates,” said Mr Oigara, who is also the Chairman of the Kenya Bankers Association.
Mr Oigara said allowing banks to price the risk of borrowers is important and the banking industry has over the last two years learnt a number of lessons in that regard.
“As an industry, we are in a new equilibrium. Banks have reached a new business model. We lend to current customers at 13% because we have accepted their risk profile as an industry. That will not change the next day. So the fear that there will be a massive repricing the next day is not true,” Mr. Oigara highlighted.
The net effect of the capping has been a credit squeeze and a slowdown in lending especially towards Small and Medium Enterprises, whose risk profile is perceived to be higher than that of bigger and more established businesses.
In a heated dramatic session on Tuesday in National Assembly, chaired by NA speaker Justin Muturi, MPs failed to thwart the president Kenyatta’s proposal to repeal rate cap.
Consequently, President Kenyatta’s memo recommending the repeal on rate cap automatically sailed through.
The MPs, however, want the president’s memo to be amended so that those who are already servicing old loans under the repealed regime would not be affected.
“Notwithstanding the repeal of section 33 B, any agreement or arrangement to borrow or lend which was made or entered into…shall continue to be in force on such terms, including interest rates and for the duration specified in the agreement or arrangement,” the report tabled in the House Tuesday, proposes.
The head of state rejected the 2019 Finance Bill following the Central Bank of Kenya (CBK)and the National Treasury’s argument that the rate cap was hurting the economy.
Their argument is that the cap has cut private-sector loan growth because banks have avoided lending to customers deemed as risky, including small and medium-sized businesses as well as individuals who borrow for consumption.