Central Bank of Kenya (CBK) governor Patrick Njoroge. FILE PHOTO NMG The Central Bank of Kenya governor Patrick Njoroge has asked bankers to adopt a new sense of social responsibility in pricing of loans, days after a legal cap on borrowing was lifted in a move expected to unlock credit to the economy.
The removal of the cap is seen as a major win for banks, but there are fears that the repeal will expose borrowers to costly lending rates, which had touched a high of 25 percent before the introduction of the ceiling.
“I want to emphasize that for all of us with great powers comes great responsibility,” Dr Njoroge said during the Kenya Bankers’ Association (KBA) Sustainable Finance Initiative Catalyst Awards in Nairobi on Friday.
Banks have pledged not to go back to the exorbitant interest rates they were charging before the introduction of the rate cap even as several of them move to readjust to higher rates.
“We must satisfactorily respond to the question at the top of every Kenyan’s mind…‘What will be different this time?’ said Dr Njoroge said. “We must not fail Kenyans!”
Earlier this week, KCB #ticker:KCB chief executive Joshua Oigara said that high-risk borrowers – individuals and small businesses – face an increase in loan rates of up to three percentage points following the removal of the legal cap on commercial lending charges.
In the amendments to the rate cap legislation, legislators shielded existing loans from higher interest rates once the cap is repealed, meaning that only new loans will be affected by the high interest rates set to follow.
President Uhuru Kenyatta’s bid to remove a cap on commercial lending rates was passed in Parliament early this month potentially boosting the flow of credit to the economy but also setting the staging for return of expensive credit.
Kenya capped commercial lending rates in September 2016 at four percentage points above the central bank’s benchmark rate in an attempt to limit the cost of borrowing for businesses and individuals.
Although the aim was to help small traders access capital at affordable rates, the cap had the opposite effect, as lenders deemed SMEs too risky to lend to, arguing they could not price risk accurately while the cap was in place.
Commercial banks have already started marketing aggressively retail loans to customers with new rates following the removal of the caps.Cooperative Bank of Kenya (Co-op Bank) #ticker:COOP emerged as the overall winner […]