Banks push government to scrap interest rate cap

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NAIROBI, KENYA: Banks are pilling pressure on the Government to scrap interest rate controls, saying they have reduced credit to the private sector and failed to increase savings, as anticipated.

The lenders, under the aegis of the Kenya Bankers Association (KBA), on Thursday released a survey conducted in January and February that polled 1,884 people to back up their claims.

“The solution is not to tweak the law, but to remove it and consider some proposals to make credit accessible. We know these problems and we are trying to address them,” said KBA Chief Executive Habil Olaka at a press briefing in Nairobi.

There are growing sentiments that banks are using the reduced 2016 profits to arm-twist the government into getting rid of the controversial law.



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Treasury Cabinet Secretary Henry Rotich will deliver his budget statement next week, which may touch on the banking law through the Finance Bill.

According to the KBA survey, the rate cap law has not affected savings and borrowing patterns among consumers, but has made it difficult for banks to lend.

Economists have argued that the rate cap law may have been responsible for lower GDP growth at the end of last year and may further reduce performance this year.

“There is mounting evidence the interest rate cap introduced in September 2016 dampened growth in quarter four and at the start of this year,” said Focus Economics in an analysis. Mr Olaka backed this view, saying the new law only made a bad situation worse as the market was experiencing volatility for the better part of the year.

He further noted that in the last quarter of 2015, Central Bank raised the indicative rate for borrowing and removed money from the market to prop up the shilling. At the time, the Kenya Revenue Authority missed its targets, forcing the government to get money from the financial markets.

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