Oigara rules out massive loans repricing ahead of rate cap scrappingNovember 6, 2019
NAIROBI, Kenya, Nov 6 – Customers perceived by banks to be ‘high risk’ could see a 2 – 3 percent increase in the cost of their loans.
Reacting to the decision by the National Assembly to lift the cap on interest rates, KCB Group Chief Executive Officer 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.
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.
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 Oigara, who is also the Chairman of the Kenya Bankers Association.
“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,” explained 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.
“Banks are ready to lend. So we are going to see more people including SMEs start accessing credit in the industry,” Oigara added.
The banking industry has over the last two years experienced the full impact of the amendments to the Banking Act made in 2016 introducing limitations on the chargeable interest on credit.
The unintended effect of the interest rates cap has a result been negative across the banking sector and the economy, especially among the SMEs, and any efforts to correct the situation will be good for every interested party.
The repeal of the cap has widely been debated by analysts, consumer groups, politicians and even in the media; creating fears that banks will reprice loans upwards.