Bankers have reacted to the proposed capping of interest rates by pooling Sh30 billion to lend to small and medium sized enterprises at friendly interest rates in hopes of subverting the mounting pressure for setting capping rate. The CEOs are lobbying against a Bill, passed by Parliament and forwarded to President Uhuru Kenyatta for assent, which proposes to cap their lending rates and put a floor to what they pay for savings.
Chief executives of all commercial banks have signed a memorandum and presented to the Central Bank governor, pledging to contribute to the fund based on their lending to small businesses. “The banks will also set aside Sh100 million to give technical assistance to micro, small and medium sized business which will enable them secure financing,” said Kenya Bankers Association chief executive Habil Olaka.
Banks fear that in case the President rejects the Bill, parliamentarians may veto his decision and marshal two-thirds support for a popular amendment thus leaving the President with no choice but to sign the bill.
The funds will be lent out at below 14.5 per cent which will be the ceiling rate if the Bill is assented by the President immediately. Banks pledged to cut their interest rates by at least one percentage point immediately to pass on the cut by CBK on the standard base lending rate of the industry, the Kenya Banks’ Reference Rate (KBRR).
The Bill passed by Parliament is seen to ignore the role of the Treasury in the high interest rate regime and put the entire load on banks.
The bankers cancelled bank closure charges, dubbed a nuisance fee by the CBK, in an effort to ease movement of customers across lenders. The cancellation is inconsequential in the debate on interest rates as the cost of moving a loan remains high, hampering movement to cheaper lenders. KBA blamed the government for the high cost of transferring debt, noting that the Treasury pocketed most of the charges involved in the transfer process with charges such as stamp duty.