In­sur­ers to feel heat of loan cap­ping law – ICEA

The Star (Kenya) - - News Business -

The law cap­ping in­ter­est rates charged by banks will de­press rev­enues of in­sur­ance com­pa­nies whose earn­ings from term de­posits are set to fall, an­a­lysts from fi­nan­cial ser­vices group ICEA Lion’s as­set man­age­ment arm have said. In a re­search note, they said the con­trolled in­ter­est rate regime will lead to lower mar­gins for some in­sur­ance prod­ucts. “Rev­enue for the in­sur­ance in­dus­try is likely to de­crease as mar­gins from some of their prod­ucts de­crease, for ex­am­ple, credit life and in­vest­ment in­come from bank de­posits,” said the firm in the re­search note. “Banks are likely to lower their de­posit-tak­ing rates to pro­tect their mar­gins.” This spells an even more painful year for the in­sur­ance in­dus­try whose net profit dropped last year to Sh9.73 bil­lion from Sh17 bil­lion the pre­vi­ous year, ac­cord­ing to data com­piled by In­sur­ance Reg­u­la­tory Au­thor­ity. The law caps the rate of in­ter­est on bank loans at four per cent above the base rate, a grey area in the law as there’s con­tention on whether to use the Cen­tral Bank Rate or the Kenya Bank Ref­er­ence Rate when pric­ing loans. At the mo­ment, lenders have capped the rate at 14.5 per cent, mean­ing they are us­ing the CBR as the base rate.

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