Banks will maintain fair borrowing rates in case the interest rate cap is repealed, its umbrella association said yesterday.
Kenya Bankers Association said the industry will be guided by the Banking Sector Charter to ensure borrowers and not exploited once the country adopts risk-based lending.
KBA has presented their proposal to Parliament in support of an amendment of Banking Act (Cap.488) under the Finance Bill 2019.
"We have a framework under place as set by Central Bank of Kenya that should govern behaviour of banks conduct toward the consumers in the non-capped environment," KBA chief executive Habil Olaka said during the launch of the second strategic plan 2019-2023.
Banks have opposed the interest rate cap that puts the ceiling at 13 percent and instead lobbied for the introduction of risk-based lending but MPs have consistently blocked their attempt, saying profiling will not protect borrowers.
“We have to know where the discussion on repeal is coming from,” Bondo MP Gideon Ochanda said yesterday.
He added: "If it is going to be removed then banks have to have a self-regulatory system before we start seeing the interest rates shoot.”
The proposal calls for consideration to allow on credit pricing based on individual risk.
Banks argue that sustainable low interests rate would not be attained with the current regulation.
The law was intended to spur credit growth in the market especially the unsecured individuals, micro, small and medium enterprises.
However, according to KBA, the objective has not been realised.
“We are aware of the concerns mostly what happens to borrowers who have been borrowing below 13 per cent and below," Olaka said.
He said risk-based pricing is not exploitive and that the fear with a consumer is why they should borrow at 30 per cent for instance.
The repeal is expected to be included in the provisions of the Finance Bill 2019 that will be debated by Parliament after the August 2019 recess and is expected to become law by October.
However, if repealed, risk-based lending will come into effect next year in accordance with High Court ruling that gave Parliament one year until March 2020 to declare limits on lending charges.
KBA chaired by KCB bank chief executive Joshua Oigara pointed to current high pricing pushing borrowers to shylocks and FinTechs.
“We recognize as banks that our market is dynamic, and we face increased competition internally across banks and externally from new entrants such as non-bank FinTech’s," Oigara said.
In their memorandum on the Finance Bill 2019, KBA indicated that only new loan contracts will be risk-priced.
“Banks will maintain the current performing customers' loans contracts within the existing contractual framework,” it stated.
