Kenyan banks have said that they will be forced to lock out about 40 per cent of new borrowers if the bill on capping interest rates is signed into law.
According to a statement by the Kenya Bankers Association, some Sh. 18 billion will be pushed out from the banking system to microfinance institutions and informal lenders such as shylocks.
“If the Bill moves forward as proposed…the immediate impact is more than Sh18 billion worth of personal loan applications of values of Sh200,000 and below,” said KBA in a statement. “This Bill will, therefore, transfer such lending from banks to micro finance institutions, informal lenders and shylocks which charge substantially higher and unregulated interest.”
Treasury secretary Henry Rotich and CBK governor Patrick Njoroge have, however, noted banks have room to slash their interest rates without being forced to do so through legal framework.
“The question is why extract too much [from customers] yet you can still live with less profits and lower lending rates. We will look at all the arguments, including whether banks are doing enough and the mechanisms we need to put in place to ensure that,” said Mr Rotich yesterday.
Experts warn capping will force banks to avoid giving loans to perceived risky borrowers who are mainly individuals and small and medium-sized businesses.
