October 30, 2019 / 4:22 AM / 16 days ago

UPDATE 3-Kenyan parliamentary panel backs lifting cap on lending rates

(Adds surge in bank shares)

By Duncan Miriri

NAIROBI, Oct 30 (Reuters) - Kenya’s parliament should repeal a cap on commercial lending rates, in line with the president’s demands, the finance committee of the legislature said in a report seen by Reuters on Wednesday.

President Uhuru Kenyatta refused to sign the government’s budget for this financial year earlier this month, demanding that lawmakers repeal the cap, which has been blamed for a slowdown in private-sector credit growth.

The committee’s backing probably improves the chances the cap would be lifted. The panel also proposed shielding existing loans from any increases in rates if the limits are repealed, according to its report, which was issued late on Tuesday.

“Any agreement or arrangement to borrow or lend which was made ... shall continue to be in force for such terms including interest rates and for the duration specified in the agreement,” the committee said.

Kenyan bank shares on the Nairobi stock market surged after the report. Co-op Bank led the gains, jumping 10.0% to 12.50 shillings per share. Equity Bank shares rose 8.64% to 40.50 shillings ($0.3924), Refinitiv data showed.

Barclays Kenya, KCB Group and Standard Chartered Kenya also rose.

“We are going to see that excitement building,” said Eric Musau, an analyst at Standard Investment Bank in Nairobi. “There is a sense that this will be good for lending growth and banks’ margins.”

Parliament will vote on whether to accept the finance committee’s recommendations next Tuesday, said Aden Duale, parliament’s majority leader.

Lawmakers have the option of removing the cap from the bill or overruling the president if two-thirds of the 349 members vote to override his position.

In 2016, the government limited the rates banks can charge customers to four percentage points above the central bank’s benchmark - currently 9% - saying it was concerned about high rates.

But the cap had unintended consequences, among them reducing loans for customers deemed as risky and blunting the effectiveness of monetary policy, the central bank says.

Reporting by Duncan Miriri; editing by Shri Navaratnam, Larry King

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