CBK in court to back removal of interest caps

The Central Bank of Kenya (CBK) has filed a cross-petition in court to defend its stand for the total removal of interest caps by commercial banks.

This comes after the High Court on March 14, 2019 declared the Banking (Amendment) Act 2016, which capped interest rates, as unconstitutional.

CBK hopes that through the a cross-petition it will underscore its reasons for its opposition to the rate capping regime.

“We need to explain the encroachment on monetary policy, a matter which the petitioner failed to fully convince the courts on. I think it is in our scope to convince the courts,” said CBK Governor Patrick Njoroge.

He was speaking during the bi-monthly post-monetary policy committee (MPC) brief on Thursday.

Dr. Njoroge further underlined the ramifications arising from the continued stay of interest rate caps on the economy to echo the institutions longstanding stance on the issue.

According to the CBK boss, the effects of the capping law have extended to affect not just the MPC’s effectiveness but also credit flow to micro, small and medium enterprises (MSMEs).

“Domestically, we need to find a way to expand credit access to MSMEs and provide them with other necessities to grow,” he added.

The private sector has remained on the very receiving end of the rate-cap implementation as their sources of credit dry-up, a matter further compounded by the ever-changing business environment characterized largely by global uncertainties’ and pending bills.

In spite of private sector credit growing to a 4-month high of 3.4 percent as at February, the rate of growth is yet to hit double digit growth since 2016.

The Central Bank will in its cross-petition justify a repeal of the cap from its ongoing interventions to entrench customer-centric models and the disclosure of all credit information by players in the banking system.

Part of the ongoing reforms initiated by the CBK include the creation of the cost of credit website which has been up since 2017 allowing customers to window shop loan options.

The CBK has further compelled lenders to use positively available credit information in lending to ensure the use of Credit Referencing Bureaus (CRBs) is not limited to the black-listing of loan defaulters.

The raft of reforms is contained in the Kenya Banking Charter which took effect on March 1, 2019 and requires board of directors at banks to abide by timelines in implementation.

CBK Governor Patrick Njoroge says the measures will negate a return to expensive loans upon repeal to the interest capping.

“What cannot happen is a return to the same old—upon the removal of the caps. Our vision is to have a banking sector which works for and with Kenyans. That maybe one of the issues we had before where the banking sector worked for some,” he said.