The government has admitted that the law that capped interest rates might be scrapped if it continues to have negative effects on the economy.
According to Henry Rotich, the cabinet secretary in charge of the National Treasury, the continued decline of credit to the private sector and SME is fast becoming a concern for the government.
He however noted that it was still too early to intervene. His sentiments come as local banks gang up to deny personal and business loans to borrowers in a move aimed at forcing the scrapping of the interest rate cap.
Last week, a memo purportedly from Kenya Bankers Association chief Habil Olaka was leaked, allegedly asking banks to attribute any of their bad financial performances for the year 2016 on the rate cap.
KBA has since denied that the contents of the memo. According to statistics from the Kenya Bankers Association, private sector credit growth slowed down from 17 percent to 5 percent between January 2016 and August 2016.
The interest rate cap was effected in August last year. Local banks have been categorical that they don’t want the law to be tweaked in order to work, but for its total withdrawal.
However, according to Mr. Rotich, the slowed credit in the private sector cannot be wholly attributed to the rate cap. “Two banks were placed under receivership which put some strain on the financial sector. There is also a general phenomenal because we have also seen some decline in other neighboring countries which do not have caps. When we put this together, caps could not be the only thing that has slowed down the private sector credit,” he said.
