President Uhuru Kenyatta has signed into law a Bill capping bank interest rates at 4 per cent above the Central Bank Benchmark Rate, currently at 10.5 per cent.
President Uhuru yesterday ignored forceful advice from Finance minister Henry Rotich and Central Bank Governor Patrick Njoroge and signed the mass-appeal law capping interest rates. He called banks insensitive.
The President acknowledged experts’ valid arguments but said their reasoning didn’t serve 40-plus million Kenyans burdened by high interest rates.
Limiting rates will serve him well in his reelection campaign. Approving the legislation united the government and the opposition.
“He was very clear he was President for all Kenyans and his decision would serve the majority who have been affected over years,” a senior government official familiar with the President’s thinking told the Star.
Presidency sources earlier had indicated the head of state — who was Finance minister from 2008-12 — was likely to reject the Bill. But multiple sources yesterday said Uhuru was persuaded by the majority of Kenyans he consulted who urged lower interest.
A former banker said lenderd have been making excessive profits and only have themselves to blame for the legislation.
“If they had given the President something to work with, he might not have not had to go to this extreme. It is only a year to the election and Uhuru had no choice politically,” he said.
The Bill was sponsored by Kiambu Town legislator Jude Njomo who blamed commercial banks for 10 years of empty promises to lower rates.
“Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks,” Uhuru said.
“These frustrations centre around the cost of credit and applicable interest rates on their hard-earned deposits. I share these concerns,” he said in a statement to newsrooms yesterday.
He consulted widely since receiving the Bill last week.
“This is the third time he National Assembly is attempting to reduce interest rates to affordable levels. In the previous two instances (2001, 2010), dialogue and promises of change prevailed and banks avoided the introduction of these caps,” Uhuru said. “[But] banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.”
Banking (Amendment) Bill 2015, unanimously passed by the National Assembly on July 27, now requires banks to charge a maximum of 14.5 per cent interest on loans and pay a minimum interest of 7.35 per cent on fixed-term deposits.
This is because the Bill caps lending rates at 400 basis points above the prevailing 10.5 Central Bank Rate and requires banks to pay interest equivalent to 70 per cent of the CBR on deposits.
CBR is the minimum rate CBK charges commercial banks as lender of last resort and is reviewed every two months. It is due for review on September 20.