The banking industry will continue to implement the August 10 seven-point memorandum of understanding. Banks have said interest capping law will not benefit all borrowers.
Kenya Bankers Association chief executive Habil Olaka said the Banking (Amendment) Act has not removed challenges that have kept the cost of loans high, at an average of 18.2 per cent in June excluding processing fees.
The challenges include high operational costs for lenders, costly dispute resolution mechanisms, yet to be completed digitisation of the lands registry, and the Credit Reference mechanism which is being developed.
“Our plan will not be affected by whatever that has been passed in the law because we gave a clear commitment to deliver,” Olaka said. “The side effect of this law is that where the bank does not have appetite for risk that cannot be compensated by rates prescribed by the law, some of those who would have benefitted would have to go to informal channels.”
The plan includes a Sh30 billion loan facility for the micro, small and medium-sized enterprises at an interest of 14.5 per cent. The facility – Inuka Programme – also has a Sh100 million capacity building fund to train MSMEs on how to prepare financial reports to help them negotiate lower rates.
Co-operative Bank was among the first lenders to direct its managers to comply with the amended law by capping interest on new loans at 14.5 per cent.
Managing director Gideon Muriuki said the second-largest lender by assets will apply the 10.5 per cent Central Bank Rate as base rate, pending the publication of guidelines by the Central Bank of Kenya.
“We advise that pending receipt of full guidelines from our regulator, the Central Bank of Kenya, particularly on the applicable rate, all new credit facilities shall be at a rate not exceeding 14.5 per cent,” Muriuki said in a memo to branch managers on Friday.
Banking stocks at the Nairobi Securities Exchange continued to fall by big margins for the second day running on Friday due to a sell-off by investors fearing reduced returns on their investment.
KCB shares dropped 10 per cent to Sh27 a piece, compared with Thursday’s price, followed by Equity Bank at 9.92 per cent to Sh29.50. The fall was also felt by I&M Holdings, Housing Finance and Co-operative Bank which shed 9.84, 9.71 and 9.62 per cent, respectively, on their share prices.
Mid-tier NIC’s shares fell by 9.43 per cent, Standard Chartered Bank’s by 6.86 per cent, while Barclays Bank shares traded 3.95 per cent lower than Thursday.