Kenya Bankers warn that interest rate cap continues to dampen profitability, and may push some to the rocks, KBA

Growth in earnings by commercial banks will soon grind to a halt under prevailing macro-economic conditions, the Kenya Bankers Association (KBA) has warned.

Though a majority of lenders have continued to churn out a profit under the interest rate capping bottlenecks, KBA terms the underlying growth elements as unsustainable in the long-run.

Commercial banks have embarked on a mix of increased government lending, automation and regional expansion in the intermediating period since the legislation of lending ceilings in September of 2016 to absorb the effects of the lending ceiling.

Even so, the bankers association believes growth fundamentals are unattached to the country’s overall economic prospects to leave profit making on sinking ground.

“The government will reach a point where it is able to manage its fiscal deficit and won’t significantly rely on borrowed funds,” said KBA Chief Executive Officer Habil Olaka.

“On efficiency, you can only cut your fat to a point where you remain with the bone, meaning you can’t cut anymore. Even expansion has a limit and this is not where we would like to go.

According to Mr. Olaka, the resolution to sustainable growth by banks lies largely in the freeing up of credit to the private sector’s small and medium enterprises (SMEs) who make for the bulk of Kenya’s economic output.

While the interest rate cap was originally tailor-made for this very purpose, the regime has failed to propel both private sector credit and savings to end as a stumbling block to economic expansion.

Private sector credit growth has for instance fallen to the low single digits in years’ since the cap’s enactment from an average high of 13.5 percent with commercial bank’s telling of hardships of pricing the risks for businesses at a rate of four percent above the Central Bank Rate (CBR).

At the same-time bigger banks have stepped up their expansion to the region with lenders such as KCB opening up a representative office in Ethiopia in 2016 while its nemesis Equity has most recently put out plans to acquire four banks in Southern Africa from London Securities Exchange (LSE) listed Atlas Mara in a Ksh.10.6 billion share-swap deal.

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