September 18, 2019 / 9:11 AM / a month ago

UPDATE 2-Kenyan lawmakers reject Treasury bid to repeal rate cap

(Adds lawmaker, central banker comments)

By George Obulutsa

NAIROBI, Sept 18 (Reuters) - A Kenyan parliamentary committee has blocked the finance ministry’s move to scrap a cap on commercial lending rates imposed by lawmakers in 2016, the committee said on Wednesday.

In a report on the 2019/20 (July-June) fiscal year that will be debated and voted on by the whole house, parliament’s finance committee maintained the cap but sought to change its language to make it more clear.

In its budget proposals to parliament in June, the finance ministry sought to repeal the rate cap, arguing that it has constricted private-sector credit growth as banks shunned lending to customers deemed risky, including small and medium-sized businesses.

The central bank has said the cap probably reduced 2017 economic growth by 0.4%.

Commercial interest rates were capped in 2016 at 4 percentage points above the benchmark central bank rate — currently 9% — by lawmakers who said they were concerned about high loan costs.

In March, the High Court ruled that the section of the law capping rates was unconstitutional and gave parliament a year to amend it. Lawmakers have started a separate amendment to comply with the court’s ruling.

In its report on the budget, the finance committee asked that the law be rewritten to make clear that the cap applies to annual interest rates on all commercial loans.

Parliament will vote on committee’s recommendations on a date to be determined. The measure will then be forwarded to the president for assent. Parliamentarians have expressed their support for the cap.

“We are going to remove any ambiguities and still have the cap,” lawmaker James Nyikal said in parliament.

Jibran Qureishi, the regional economist for East Africa at Stanbic Bank, said he was not surprised by the decision to keep the cap.

“They were always going to reject it,” he told Reuters. “But it’s unclear whether the president will assent to it in this current form or send it back with changes.”

When the law was put in place in 2016, banking stocks on the Nairobi Securities Exchange nosedived. Kenya had previously stopped controlling commercial rates in the early 1990s. Kenya eventually offered the highest return on equity for lenders on the continent, drawing in foreign investors.

Patrick Njoroge, the governor of the central bank, said on Wednesday the caps would eventually be removed, terming them a “temporary deviation”.

“This is only a matter of time,” the central banker told an investor forum in Nairobi organised by Renaissance Capital. (Additional reporting by Omar Mohammed and Duncan Miriri; editing by Larry King)

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