Published On: Tue, Nov 26th, 2019

Kenya Bankers will not return to Wild West kind of banditry

Source: Reuters

George Obulutsa

NAIROBI, Nov 26 (Reuters) – Kenyan banks will not return to the “wild west kind of banditry” after a cap on commercial lending rates was lifted this month, the governor of the central bank said on Tuesday.

The government abandoned the cap, which was imposed in 2016, after it was blamed for curbing private-sector credit growth and reducing the effectiveness of monetary policy.

Lawmakers shielded existing loans from any increases in rates when they removed the cap. Consumers have still expressed concern that banks will return to uncontrollably high lending rates, which ranged from 18% to 27% and pumped up bank earnings.

“They are not going back to same old, same old ways of the past, the wild west kind of banditry,” Patrick Njoroge told a news conference.

Lenders have promised not to jerk up rates dramatically, saying the economic conditions do not warrant charging very high rates of more than 18% or so.

“Banks will abide by the law,” Joshua Oigara, the chairman of the Kenya Bankers Association, said in a statement issued earlier this month after the cap was removed.

In February, the industry adopted a new banking charter, which requires lenders to be transparent and to be guided by a customer’s risk profile while pricing credit, Njoroge said.

“They need to be more ethical. They should stay away from short-term gains; the focus on … this quarter’s returns, what is my bonus?,” Njoroge said.

Banks used to charge the bulk of their customers a flat rate, only offering discounts to the most liquid blue-chip companies, stoking consumer anger and bringing about the cap on rates.

They did not also consider a customer’s positive credit history in pricing loans, only acting on the information when it was negative to deny loans.

Policymakers cut the benchmark lending rate for the first time in more than a year on Monday, saying a tightening stance by the Treasury had created room for easing.

The economy is expected to grow by 5.9% this year compared with 6.3% last year, Njoroge said

This article was first published on reuters

. (Writing by Duncan Miriri; editing by Larry King)

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