Market activity at the Nairobi Securities Exchange (NSE) soared to a three month high as bank counters blinked green on President Uhuru Kenyatta’s rejection of the interest cap law.
On Thursday, banks dominated the top five biggest gainers at the Nairobi bourse with the share prices of the newly formed NCBA Bank and Equity Bank Group rising 6.96 and 5.41 per cent respectively.
Yesterday, NCBA Bank’s share had gained 9.78 per cent by noon to trade at Sh32, 50 cents up compared to the previous day.
Banks have been lobbying for the scrapping of the law signed in 2016 that capped lending at four per cent above the Central Bank Rate (CBR).
The Monetary Policy Committee (MPC) retained the minimum rate at nine per cent during its September meeting, limiting commercial bank rates at a high of 13 per cent.
In a memorandum to the National Assembly detailing his decision not to assent the Finance Bill, 2019, Uhuru listed seven reasons why he is against the law, which he signed to in August 2016.
‘’It is apparent that the capping of interest rates has caused unintended effects that are significant and damaging to our economy and in particular small businesses which are the hardest hit,’’ Uhuru said.
Kenya Bankers Association (KBA) yesterday commended Uhuru for rejecting the cap law, saying the private sector activities have been adversely affected by the legislation.
‘’The net effect of the capping has been a slowdown in lending which has impacted businesses and households. Prior to the caps, the MSME loan portfolio grew at a rate of 15 percent per annum,’’ KBA chairman Joshua Oigara said in a statement.
In late September, lawmakers rejected a request by the Treasury to remove the caps, saying lenders had not proven they could be trusted to lower rates without pressure.
The onus is now with the August House to either scrap or modifies the law amid a limited time frame. In March, the High Court suspended the cap law and gave 12 months to amend it.
This was after a petitioner Bonface Oduor sought to establish the constitutionality of the provisions of the Banking (Amendment) Act No. 25 of 26, which introduced section 33B into the Banking Act.
The news of Uhuru rejecting the law saw equity turnover at NSE improve by 449 per cent from Sh362 million on Wednesday to Sh1.9 billion on Thursday.
Likewise, the NSE 20 share index that tracks top counters at the bourse was up 20 points to close at 2456.34 points from the previous trading session of 2435.74. The number of shares traded also went up by 400 per cent from 11.6 million to 51 million.
The NSE chief executive, Geoffrey Odundo, attributed the improved trading performance to enhanced infrastructure and growing investor confidence.
‘’NSE is confident that market performance will steadily improve for the remainder of the year. He urged investors to take advantage of the discounted prices,’’ Odundo said.
The Nairobi bourse has been on a bare run since last year, with the rich index sinking to a 10- year low of 2,552.19 points in August.
