18 May 2017

Kenya: Loan Interest Rate Caps Here to Stay, Declares Ruto

The government has ruled out scrapping caps on loan interest despite a clamour by commercial banks.

In a TV interview Tuesday night, Deputy President William Ruto said the law would remain and urged commercial banks to change their business models in line with the law.

Banks have cut lending, with the growth in credit dropping from 16.8 per cent in January 2016 to 4.3 per cent in December, according to Central Bank of Kenya figures.

"Yes, there has been a slowdown and partly because there has been expectation there will be change of policy. But I'm sorry if that is what is being sought - it is not going to come anytime soon," said the deputy president.

He defended the law, saying there is room for banks to be profitable.

"Our position is that the financial institutions we have in Kenya should cut down on their 'fat', they should cut on their expenses ... they should change their business model. It is possible," Mr Ruto said.

"It happens everywhere else in the world, there is no reason it cannot happen in Kenya."

It is possible to do business even with interest rates as low as 10 per cent, he said, adding that it is not justifiable for "anybody to tell us that at 14 per cent, which is currently the rate, there is any serious institution that cannot do business. We don't believe so."

Commercial banks have in recent days continued their onslaught on the rate-capping law, insisting controls have defeated the objective of providing affordable credit.

"We believe in free markets as a broad principle. We also believe that our financial institutions have not been responsible in lending," said Mr Ruto.

Kenya Bankers Association (KBA) chairman and Standard Chartered Bank (#ticker:SCBK) regional CEO Lamin Manjang recently said caps had led to a vicious cycle of job losses and contraction in credit.

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