13 November 2012

Kenya: State Seeking Ways to Ensure Banks Cut Rates

THE Treasury is pursuing yet to be disclosed mechanisms to make banks cut their interest rates at a much faster rate every time the Central Bank Rate is reduced.

Finance Minister Njeru Githae said it was unacceptable for banks to take up to three months before effecting the necessary reductions after the Central Bank monetary committee slashes the CBR, the key indicative rate to banks.

The monetary committee in its last meeting last week slashed the CBR, the rate at which CBK lends to commercial bank as a lender of last resort, to 11 per cent from 13 per cent. A reduction in the CBR is expected to translate into a reduction in interest rates on loans. However not all banks effect the necessary cuts and when they do, not immediately.

"Three months in our view is too long for them to respond," Githae said. In June, Treasury PS Joseph Kinyua said the government plans to push for introduction of new reforms in the banking sector that will compel banks to reduce their lending rates.

Kinyua hinted that the government intends to introduce new rules that will reduce costs of access for funds by banks and by extension customers.

Top on the priority of the things to be changed is the collateral structure currently in place. The judiciary is also being lobbied so that disputes between banks and banks or with customers are decided on a much faster rate.

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