Banks have no timeline to synchronize loan rates with CBK’s Benchmark – Njoroge

Banks have no timeline to synchronize loan rates with CBK’s Benchmark – Njoroge

January 28, 2020 0 By mykenyancareers
CBK GOVERNOR PATRICK NJOROG - Banks have no timeline to synchronize loan rates with CBK’s Benchmark – Njoroge
Njoroge said the lenders are only expected to comply with Section 33B of the Banking Act even as the effects of the repealing of the rates cap takes effect/FILE

NAIROBI, Kenya, Jan 28 – Central Bank of Kenya (CBK) says there are no specific timelines for banks and financial institutions to synchronize loan rates with its benchmark rate.

Governor Patrick Njoroge said the lenders are only expected to comply with Section 33B of the Banking Act even as the effects of the repealing of the rates cap takes effect.

“This is like training someone a new language and the banks operate at different levels, so we do not have a specific timeline on when it will eventually kick-off,” said Njoroge.

Currently, CBK is in talks with the institutions to set a structure that they will use to lend to their clients.

“We will have several rounds of conversation working on the context of the banking sector charter and they have to come up with a plan,” CBK Governor Patrick Njoroge said during 2020’s first post MPC meeting.

Last year, President Uhuru Kenyatta signed into law the Finance Bill 2019 that saw the repeal of the interest rates cap.

The President had argued that caps on interest rates had led to a decline in economic growth and a weakening of the monetary policy.

The cap limited what lenders could charge on loans to 400 basis points above the central bank rate and weighed on credit growth as banks opted to rather invest in higher yielding bonds than finance risky borrowers.

The removal of the rate was aimed at enhancing access to credit by the private sector especially the Micro, Small and Medium Enterprises as well as cut out exploitative shylocks and other unregulated lenders.

The law also maintained steady interest rates on loans already given by the commercial banks, including arrangements for new loans.

It would also expose borrowers to costly lending rates, which was previously at 25 percent since 2016 before the review.

However, a statement by KBA revealed that most creditors are still offering loans at an annual interest rate of 13 percent despite the repeal of the rate-capping that allowed them to raise prices on credit facilities.