March 15, 2019 / 10:31 AM / 6 months ago

UPDATE 1-Kenya bank shares up after court ruling on interest rate caps

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By George Obulutsa

NAIROBI, March 15 (Reuters) - Kenyan banks’ share prices rose on the Nairobi Securities Exchange on Friday, a day after a court ruling declared interest rate caps unconstitutional and gave parliament 12 months to review them, traders said.

A consumer organisation that was enjoined in the court case said on Friday it planned to appeal the ruling.

Cooperative Bank was up 7.3 percent at 15.50 shillings, while KCB Group was up 2.8 percent at 44.50 shillings and Equity Group up 2.5 percent at 43.00 shillings, as at 0920 GMT.

“The market has taken the ruling positively. Almost all of the banking stocks are up. Basically they are expecting that the rate cap will be repealed, so that is positive in terms of earnings for banks,” Sarah Wanga, head of research at AIB Capital, said.

On Thursday, a high court ruled on Thursday that the cap on commercial bank interest rates was unconstitutional, but judges suspended the ruling for 12 months to allow parliament to re-examine the law.

The ruling said the section of the banking act imposing the cap was unconstitutional because it only punished bankers and not customers for contravening the law.

On Friday, Stephen Mutoro, secretary general of Consumers Federation of Kenya said they planned to appeal the ruling. The organisation was one of the parties enjoined in the case, filed by an individual.

“We are going to challenge the ruling. We are filing our appeal on Monday,” Mutoro told Reuters.

Lawmakers capped interest rates at 4 percentage points above the central bank’s benchmark in 2016, saying they were concerned about high levels. But that has led to a private credit squeeze, as banks say it forced them to cut back on loans to high-risk groups.

The central bank has also said in the past that the cap had made it difficult to assess the effectiveness of monetary policy actions like that.

The rate cap was designed to help small traders access capital at affordable rates, but has had the opposite effect, with banks saying they cannot price risk to small and medium enterprises (SMEs) properly while the cap is in place. (Additional reporting by Humphrey Malalo; Editing by Mark Potter and Gareth Jones)

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