We will fight to keep cap on loan rates, says Cofek

CBK gover­nor has hinted of plan to re­peal the law, say­ing it is hurt­ing econ­omy

Business Daily (Kenya) - - ECONOMY & POLITICS -

A con­sumers lobby has vowed to fight plans to amend or re­peal the law cap­ping bank lend­ing rates.

Con­sumers Fed­er­a­tion of Kenya (Cofek) sec­re­tary­gen­eral Stephen Mu­toro said the plan to lift the rate cap on loans, which turned a year old yes­ter­day, has “no ba­sis”.

The Cen­tral Bank of Kenya (CBK) Gover­nor Pa­trick Njoroge Wed­nes­day sig­nalled that it in­tends to push for the re­peal of the law that con­trol in­ter­est rates, ar­gu­ing that it is hav­ing a neg­a­tive ef­fect on the econ­omy.

“Cofek will do ev­ery­thing pos­si­ble to keep the rate caps un­til such a time CBK and Na­tional Trea­sury will ad­dress the non-trans­par­ent pric­ing of loans and re­duc­tion of the cost of credit in Kenya,” Mr Mu­toro said in a state­ment yes­ter­day.

“On the con­trary, only Par­lia­ment can re­verse the law with rea­sons or al­ter­na­tive mit­i­ga­tion.”

The Bank­ing (Amend­ment) Act, 2016, which came into force on Septem­ber 14 last year, caps loan charges at four per­cent­age points above the Cen­tral Bank RATE(CBR), presently stand­ing at 10 per cent, and re­quires lenders to pay in­ter­est of at least 70 per cent of the CBR on term de­posits.

This caps in­ter­est rates at 14 per cent com­pared to an

Mr Njomo yes­ter­day said there was no ev­i­dence that banks would vol­un­tar­ily re­duce rates STEPHEN MU­TORO

| COFEK SEC­RE­TARY GEN­ERAL av­er­age of at least 20 per cent and a peak of 25 per cent be­fore the law took ef­fect.

Bank earn­ings have dipped fol­low­ing the law and lenders have cut credit to homes and busi­nesses.

“I think it is clear to us that this (rate cap) has been prob­lem­atic in many ways. What I can­not tell you is the path go­ing for­ward (and) how this will hap­pen,” Dr Njoroge said on Wed­nes­day.

“All I can tell you is that it is in our in­ter­est as a coun­try, it is in our in­ter­est as a cen­tral bank to work to re­verse these mea­sures and go back to a regime where in­ter­est rates are freely de­ter­mined, but in a dis­ci­plined en­vi­ron­ment,” he added.

How­ever, Ki­ambu MP Jude Njomo, who spon­sored the rate cap bill, said the Na­tional As­sem­bly will throw out any pro­posed law aimed at al­ter­ing the credit leg­is­la­tion. The MP yes­ter­day said there was no ev­i­dence that banks would now vol­un­tar­ily re­duce their in­ter­est rates as they had not done for many years be­fore the law was put in place. The Pres­by­te­rian Uni­ver­sity of East Africa has shut its Nairobi town cam­pus in com­pli­ance with tough reg­u­la­tions on set­ting up of such cen­tres.

Vice-chan­cel­lor John Mun­ga­nia said its more than 200 stu­dents have been moved to the main cam­pus at Kikuyu.

“We closed the cam­pus on Au­gust 31 af­ter it emerged that we could not meet tough rules of set­ting up a cam­pus in the city. We needed ad­e­quate space and land. We have al­ready ad­dressed the wel­fare of the af­fected stu­dents,” said Prof Mun­ga­nia in an in­ter­view yes­ter­day.

The reg­u­la­tory rules in­cluded hav­ing am­ple space for learn­ing, a li­brary and be­ing far from noisy places.

The clo­sure of the cam­pus comes in the wake of Kenya Methodist Uni­ver­sity shut­ting down its Ny­eri, Nakuru and Mom­basa cam­puses.

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