A consumers lobby has vowed to fight plans to amend or repeal the law capping bank lending rates.
Consumers Federation of Kenya (Cofek) secretary-general Stephen Mutoro said the plan to lift the rate cap on loans, which turned a year old on Thursday, 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 on Thursday.
“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 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 on Thursday 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.