August 24, 2018 / 11:17 AM / in 8 months

UPDATE 2-Kenya parliamentary committee proposes keeping upper limit of lending rate cap -document

(Adds details on proposed changes, quotes)

By George Obulutsa

NAIROBI, Aug 24 (Reuters) - A Kenyan parliamentary committee has proposed keeping the upper limit of commercial lending rates at 4 percentage points above central bank rate, as passed into law in late 2016, a committee document seen by Reuters on Friday showed.

In June Kenya’s Finance Minister Henry Rotich proposed repealing the interest rate cap, a move approved by bankers who had said the ceiling had hurt credit growth and access to borrowing.

The government introduced the cap because it said lenders had failed to pass on the benefits of growth in the industry to the broader economy by lowering their rates, but it has been blamed for a sharp slowdown in lending especially to small- and medium-sized enterprises seen as more risky.

Yet the International Monetary Fund has demanded the cap be repealed as a condition for Kenya to access its balance of payments support.

In the document, the committee on Finance and National Planning gave no reason for its support for keeping the cap, but its recommendation won support from the lawmaker who proposed it.

“From the members that I have talked to, the mood of the house generally is that we are not ready to remove the cap. The floor may be removed, but I think the ceiling will be very difficult to remove,” Jude Njomo told Reuters, referring also to a minimum deposit rate set at 70 percent of the central bank rate.


But bankers remain critical and Jibran Qureishi, economist for East Africa at Stanbic Bank, said the cap had restrained the ability of commercial banks to price risk.

“If we see this eventually being passed by the house, there will still be a scenario where commercial banks will prefer (to allocate) most of the funds with corporates, lending it to corporates, or putting it into government.”

Rotich is also pushing a “Robin Hood” tax of 0.05 percent on amounts moved in bank transfers, money transfer agencies and other financial services of more than 500,000 shillings ($4,964).

A court temporarily suspended the tax, which had taken effect at the start of July.

The committee proposed that the tax should not apply to transfers relating to buying and selling of company shares and government securities by banks on behalf of their customers.

It also proposes to exempt any transfers to and from tax collector Kenya Revenue Authority, as well as transfers to or by the government and transfers between accounts belonging to the same person.

The committee also said its proposed amendments to the Banking Act would mean the central bank would be the sole entity allowed to make regulations on customer deposits and withdrawals.

The proposals will have to be voted on in parliament and given presidential assent before they take effect.

$1 = 100.7300 Kenyan shillings Reporting by George Obulutsa Editing by David Holmes

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