Banks to follow law capping interest rates – Association

Banks to follow law capping interest rates – Association

As commercial banks strategize on how to respond to the capping of interest rates, the Kenya Bankers Association (KBA) has committed to follow the new requirements even as they warn of repercussions that could see a significant section of the populace starved of credit.

In a statement to newsrooms, the bankers association says: “We do not feel that an arbitrary rate cap is in the best interests of the majority of people and businesses that this law seeks to support.”

The association further disagreeing with the legislative measure taken say there is no evidence to show that “such interventions have helped the majority of citizens” in other countries where similar laws have been enacted.

Most commercial banks make their money through interest charged on loans, rates that have been varying depending on the risk assessment of borrowers.

In the banking sector, up to 40 percent of banking population are categorized as small borrowers, those who take loans of up to 200,000 shillings.

For them, the interest rates vary most going above 20 percent, depending on assessment of their ability to repay.

Now that the new law requires commercial banks to lend them at up to 14.5 percent as of now, could force banks to shy away from facilitating them.

Equity Bank Chief Executive Officer James Mwangi had earlier this week cautioned that the new law risks financially excluding small traders and borrowers.

According to analysts, up to 70 percent of banking revenue is sourced from the interest rates on loans.

With the average lending rate being 19 percent, banks are set to suffer reduced revenue by at least 4.5 percent for lost revenue, which may go up were the sector to make good the threat of starving a section of borrowers.