Kenyan banks are in talks with the government about changing a law that caps commercial interest rates as lending in East Africa’s biggest economy slows, Barclays Bank of Kenya Ltd. Chief Executive Officer Jeremy Awori said.
“Those dialogues are underway between the Kenya Bankers Association and members of parliament around what would work,” Awori said Wednesday in an interview in the capital, Nairobi. The head of the bankers’ association, Habil Olaka, confirmed the talks.
President Uhuru Kenyatta introduced caps on lending rates in August, against the advice of the country’s central bank and the Treasury, fulfilling a campaign pledge he made before coming to power in 2013 that he’d lower the cost of loans. It’s failed to rejuvenate private-sector credit growth, which slowed to a 16-month low of 4.3 percent in December from 18 percent a year earlier. Kenyatta will seek a second term at a vote scheduled for August.
The Kenya Bankers Association is currently assessing the impact of the slowdown in credit growth on the economy so it can present evidence of any damage to the government, Olaka said in a phone interview.
‘Not Fit’
“We’ve always had a position that this was not fit for purpose,” Olaka said. “We are assessing the impact on credit growth and the economy as well so that we are in a better position to push for either a review of the law or its repeal altogether.”
The International Monetary Fund warned this month that the retention of the rate caps could cut Kenya’s economic growth rate by as much as two percentage points this year and next. The $69.2 billion economy is forecast to grow 5.7 percent this year, according to the central bank.
The caps have limited access to credit by small- and medium-sized businesses as banks resort to “less risky” lending to the government, the Capital Markets Authority said in a report published Thursday.
The banking industry’s share of the market capitalization on the Nairobi Securities Exchange shrank to 29 percent last year from 48 percent in 2015, the Capital Markets Authority said.
Talks between lenders and the government are needed “as a matter of urgency to clarify the way forward,” Awori said.
Barclays Kenya earlier reported a 12 percent drop in full-year profit to 7.39 billion shillings ($71 million) as bad debts surged after banks adopted “prudent impairment models,” Chief Financial Officer Yusuf Omari said.
Bloomberg