Banks seen as biggest winners as lawmakers scrap rate caps

President Uhuru Kenyatta - UN Habitat Assembly
President Uhuru Kenyatta: PHOTO/COURTESY

By Bloomberg,

President Uhuru Kenyatta yesterday won a critical vote in parliament to remove interest-rate caps, paving the way to scrap a law that’s starved businesses of credit.

The removal of the law, which set a ceiling on what lenders can charge on loans at four percentage points above the benchmark rate, will appease the central bank that criticized it for complicating monetary policy. The law came into force three years ago to improve terms for borrowers but instead made lenders more selective on who they provided money.

The vote was held amid heckling by lawmakers who wanted the loan-price regulations retained. National Assembly Speaker Justin Muturi adjourned the session for 10 minutes after which he announced the house lacked the two-thirds-quorum required to overturn the president’s decision to remove the cap.

“The net effect on the motion is that the ayes have it and the motion is carried,” Muturi said after the house reconvened in a live broadcast of proceedings in Nairobi

“What remains is for the government printer and the attorney-general to ensure that the bill is ready and bring it back to me for my signature and presentation to the president,” Muturi said by phone after the session.

The immediate winner from the repealing of the caps will be Equity Group Holdings Plc, Kenya’s biggest bank by valuation, because it has the largest exposure in lending to small businesses, according to Ronak Gadhia, director of sub-Saharan Africa banks research at EFG Hermes Frontier. “It also has a low loans-to-deposit ratio so its capacity to lend is stronger than everybody else.”

The biggest losers will probably be the micro-finance banks and mobile-phone lenders who weren’t subject to the rate cap and borrowers turned to for loans even when more expensive. The vote happened after markets closed in Nairobi.

Banks will now “seek to increase their market share from mobile loans,” Gadhia said. “We should see more competition on the mobile lending space among banks going forward.”

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