September 14, 2017 / 2:05 PM / a year ago

Kenyan lawmaker warns any move to change bank rate cap will fail

NAIROBI, Sept 14 (Reuters) - Kenya’s national assembly will throw out any bill aimed at altering the interest rate cap imposed on commercial banks last year, the legislator who sponsored the rate-capping law said on Thursday.

A year ago, the government capped commercial lending rates at 4 percentage points above the central bank rate, which stands at 10 percent, and also imposed a minimum deposit rate of 70 percent of the central bank rate.

It accused lenders of failing to pass on the benefits of growth in the industry by charging more than 20 percent interest rates on loans. Bank bosses, who deny the claims of exploitation, say the cap has cut lending to risky borrowers like small enterprises, curbing economic growth.

Central bank governor Patrick Njoroge said on Wednesday that a preliminary report on the impact of the rate cap would be ready soon. He reiterated the bank’s position that lenders should reduce their lending rates voluntarily.

Jude Njomo, the legislator who sponsored the rate cap bill, said there was no evidence that banks would now voluntarily reduce their rates, after dithering for many years.

“I have talked to a number of members of parliament. I have talked to a number of business people and they are really against any attempt to change that law,” Njomo, who was re-elected with a landslide in last month’s polls, told Reuters.

“It is doomed to fail.”

Njoroge has previously said the rate cap was making it harder to predict the impact of monetary policy decisions, since lenders are limited in their response to the bank’s policy signaling.

Most Kenyan banks have responded to the cap by reducing lending to the private sector and allocating higher investments to government bonds, which are perceived as risk-free.

Njomo said there was no reason for the law on capping to changed since the industry was still profitable.

“They may not be making the super profits that they were making before, but we have seen they are still registering good profits at the end of each financial year,” he said. (Reporting by Duncan Miriri; Editing by Hugh Lawson)

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