Banks start lowering interest rates in line with new law

Cooperative Bank and Kenya Commercial Bank (KCB) have lowered their interest rates in line with the Banking (Amendment) Act 2015. The two have led the industry amid uncertainty over existing loans customers have accrued and drop in share prices of banks at the Nairobi Securities Exchange (NSE).

President Uhuru Kenyatta surprised the sector and Kenyans at large when he signed the Bill into law, paving way for capping interest rates, to the relief of Kenyans. The lending rate is now supposed to be a maximum of 14.5 per cent and deposit rates are supposed to be at 7.35 per cent at a minimum, where the Central Bank Rate is the base rate.

Cooperative Bank was the first to reduce the interest rates last week. The bank asked those with existing loans to visit the bank and refresh their offer letters. This means signing new agreements.

Yesterday, KCB followed suit saying in a statement

“In full compliance with Banking (Amendment) Act, all new facilities from KCB Bank Kenya Limited have been capped at 14.5 per cent as of today, Monday 29 August, 2016. Existing loan facilities remain priced as previously negotiated until further guidance from CBK.”

It is expected that other banks will follow suit in the coming days.

However, the banks will await communication from the Central Bank regarding existing loans to customers.

Last week, bankers body the Kenya Bankers Association (KBA) welcomed the President’s move adding that it will maintain its commitment to reducing drivers of costs and inefficiencies in the banking sector. One of the commitments they made is an SME facility of sh30 billion which will increase in the coming years. Of this, sh10 billion will be for youth and women owned businesses.

Equity, KCB Group and Cooperative Bank lost 9.32, 9.26 and 9.26 per cent respectively yesterday while I&M and NIC shed off 9.77 and 7.29 per cent respectively. Only StanChart and Barclays gained in price at 4.76 and 2.34 per cent above last Friday’s prices to stand at Sh198 and 8.75 per share.

The move by KCB and Coop Bank could help to stabilize their share prices as it provides certainty to investors.


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