A section of banks started suspending issuance of unsecured loans hours after President Uhuru Kenyatta signed the populist interest capping bill into law, it emerged yesterday.
Some, however, continued advancing all loans under the existing credit policies as they await direction from the Attorney General Githu Muigai and Central Bank governor Patrick Njoroge on transitioning to the new controlled interest regime.
The shares of the 11 listed lenders were, however, on a free fall at the Nairobi Securities Exchange as investors reacted to the new regime which may hit hard banks’ interest earnings – their largest source of income.
The loans that have been affected include personal unsecured loans which are mostly advanced on the strength of ones salary, car loans and emergency cash. The risk of default on these three types of loans are perceived to be high.
“This is to inform you that the Board Credit Committee (BCC) has today suspended lending on the following products,” a product update note by one of the tier-one lenders to its staff read on Wednesday evening, citing the above types of credit.
With the National Treasury and the CBK against the Banking (Amendment) Bill 2015, most banks were caught by surprise when the popular bill was assented to.
“Definitely we were expecting that the President will refer the bill back to Parliament for reconciliation,” Kenya Bankers Association chief executive Habil Olaka said yesterday.
He, however, maintained the reasons given by the head of state were in line with the industry’s spirit to lower the cost of borrowing, but did not agree with its letter. The industry, Olaka added, was awaiting guidelines from the CBK on how the new interest regime will be implemented when the law becomes operational through gazettement.
Key issues include how the existing loans will be treated, whether the CBK will use the 10.5 per cent Central Bank Rate or the 8.90 per cent Kenya Banks Reference Rate as the base, and if loans in foreign currencies will be affected.
“Our reservations on some of the particulars of the Act notwithstanding, we reiterate that we will comply with the Act once it has been operationalised,” KBA said in a statement. “Towards this end, KBA will engage with the Central Bank of Kenya on how the industry will best apply the law.” The heat was immediately felt on the NSE where banks control more than 40 per cent of market value.
CfC Stanbic lost 10 per cent on average – the maximum daily limit – on its shares yesterday compared to Wednesday.