Are banks secretly plotting for interest rate review?

By Ronald Owili

Are banks limiting lending to crucial sectors to persuade policy makers into reviewing the amended banking act which puts a cap on interest rates?

While the Central Bank of Kenya Governor Patrick Njoroge says there are no definitive answers yet, crucial sectors have experienced credit growth decline which reduced to 4.6 percent in February compared to 13.6 percent in July 2015.

Njoroge says the regulator is in the process of conducting a study to ascertain the real effects the law has on the overall economy and borrowing and whether it will necessitate a review

The capping of interest rates last year was seen as a chance for financial freedom for many Kenyans who could not afford credit, given banks previously charged interests rates of as high as 27% on loans.

However it now appears not enough credit is approved to sectors like manufacturing, real estate, private households and trade which account for 60% of total credit to private sector as they turn to suppliers for credit.

SME lending also shrunk as large and medium size banks turn to corporates where risks are lower with preference to short term lending.

The number of gross non-performing loans to gross loans surged 9.7%.

On the other hand, however, numbers indicate banks have enough liquidity ratio of 43.2% and capital adequacy ratio of 19.7% as at February and so begs the question are banks influencing a review of the amended banking act?.

Njoroge further expects a shift in banking business model with more consolidation with the current interest rates regime.