Another Change In The Banking Act Proposed.

There has been a lot of debate about the impact of the amendments of the Banking Act that were spearheaded by Hon Jude Njomo, Kiambu town MP in 2016.  After being passed by parliament and incorporated into the Banking Act, the amendments set a floor deposit rate of four percent and a lending cap of four percent over the Central Bank Rate (CBR).  Nevertheless, the 2018 Finance Bill removed the floor deposit rate despite leaving the lending cap intact.

In a move by  Moses  Kuria, Gatundu  South MP  to amend  the  Banking Act further  in order to  introduce  an  interest rates risk  pricing negotiation  window that has already been  communicated to the speaker of the National Assembly, J.B Muturi,  he  has  noted  that  the current legislation has led to unintended consequences as much as it has checked on  excessive and  punitive lending rates by commercial banks, protected depositors and  discouraged usury. “First, the banks have withdrawn lending to small and medium enterprises (SMEs) and unsecured individual borrowers because it has removed the leg room for pricing risks,”   Mr. Kuria says in the letter to the speaker.  “ Secondly, the cap as it exists puts the interest rate in the same level as  the government paper – treasury bills and treasury bonds –  and  commercial banks are therefore finding it more prudent to invest in these risk free instruments, instead of lending to the private sector; especially SMEs,” he  adds.

If the amendment proposed by Mr. Kuria goes through, many customers who have been denied loans by commercial banks because of being perceived to be high risk will breathe a huge sigh of relief.  Top among these customers will be micro, small and medium enterprises.