Kenyan banks might soon find themselves on the spotlight again. This follows attempts by Kenyan MPs to seal loopholes some banks have been using to charge borrowers over 14 per cent interests for loans taken.
Banks have been charging loan processing fees, insurance and negotiations fees to cushion themselves against the effects of the rate-capping law and maintain high interest incomes. KCB has, for instance, introduced a 2.25 per cent negotiation fee levied across all its loan products while Equity Bank charges an appraisal fee of one per cent that also attracts a 10 per cent excise duty.
Public Investments Committee Chairman Kimani Ichung’wa has proposed amendments to the rate cap law, by making it explicit that it caps the annual percentage rate on any facility and not a nominal rate, which allows banks to pile hidden costs.
The new law caps interest rates on loans at no more than four per cent of the Central Bank Rate (CBR), which currently stands at 10 per cent, meaning banks cannot charge interest above 14 per cent.
Through the proposed amendment, the Kikuyu MP now wants to make sure that all charges relating to a loan are included when banks compute the maximum loan interest rate cap.
“A bank or a financial institution shall set the maximum interest rate chargeable on a credit facility at no more than four per cent, the base rate set and published by the Central Bank of Kenya,” reads the draft.