Parliament has stepped up its bid to tame high interest rates through legislation just weeks after commercial banks heeded a call by the Central Bank of Kenya (CBK) and abandoned their plan to raise charges.
Anamoi MP Benjamin Lang’at, who chairs parliament’s Finance Planning and Trade Committee, said a Bill that seeks to empower CBK to regulate interest rates has been forwarded to the Government Printer for publishing.
“We have scrutinised the Bill and we have cleared it for the next stage. Hopefully the Bill will be published in a week,” Mr Lang’at said.
The CBK (Amendment) Bill 2015, sponsored by Sirisia MP John Waluke, seeks to amend Section 36 of the Central Bank of Kenya (CBK) Act, handing the regulator authority to compel banks and microfinance lenders to cap borrowing rates at five percentage points above its signal rate.
If enacted into law, banks’ lending rates would be capped at 16.5 per cent based on the current benchmark rate of 11.5 per cent.
Currently, those borrowing personal unsecured loans are paying up to 22 per cent.
READ: Banks raise loan default alarm on spiralling rates
“The main object of the Bill is to harmonise the cost of lending and borrowing in the banking sector in order to ensure that the rates reflect market conditions.” Mr Waluke says in the Bill’s memorandum of objects and reasons.
“The intention is to make the central bank rate the benchmark for the interest rates in the financial sector.”
On Friday, Mr Waluke expressed optimism that MPs will approve the proposed law to tame the escalating interest rates charged on loans.
“Even if commercial banks have dropped their bid to increase interest rates next month, the rates are still very high. We need to fast track the process of enacting my Bill to bring stability in the lending rates. Banks are racking in billions in profits and are under declaring them,” he said.
Some borrowers would have had to pay loan interest rates of as much as 30 per cent largely on account of the high cost of money driven by increasing government borrowing.
Last week, Equity bank became the latest lender to withdraw a notice for an intended increase in interest rates on loans that was to be effected on Thursday.
Equity Group chief executive James Mwangi said that the lowering of Treasury Bill rates by the CBK had given the bank room to pass on the benefits to customers.
The interbank rate has dropped to a single digit in weeks and is now at 9.3 per cent.
Mr Waluke’s draft Bill is expected to be formally introduced in the House before MPs take the Christmas recess.
SOURCE: BUSINESS DAILY