Nairobi, 18 June 2018 – Financial industry stakeholders will today hold a forum to discuss the impact of the Banking (Amendment) Act, 2016 amid concerns that the law has slowed down the pace of economic growth. Since the introduction of the legislation, the number of loan accounts has reduced by more than 1.3 million accounts, while the rate of growth of private sector credit has reached an all-time low with banks opting to invest in Government securities. The credit markets have suffered further volatility as the level of Non-Performing Loans (NPLs) increased to more than 12 percent (or Ksh 292 billion) due to the challenging business environment that was witnessed in 2017 and early this year.
Organized by the Kenya Bankers Association in collaboration with Fanaka TV and the Institute of Economic Affairs, the Interest Rate Debate will bring together the private sector, economists, Members of Parliament, consumer rights advocates and the public to discuss ways of moderating the cost of loans in a sustainable way. This the first time the banking industry is convening such a forum.
“Participants will have an opportunity to discuss the law, which from our research has stifled access to capital for small and medium-sized enterprises and households,” said Dr. Habil Olaka, KBA Chief Executive Officer. According to the Central Bank of Kenya, lending to SMEs has dropped by more than Ksh 13 billion due to banks’ heightened risk sensitivity following the enactment of the rate caps in September 2016, as well as provisioning requirements occasioned by the new International Financial Reporting Standards (IFRS) 9 on Financial Instruments.
“It is KBA’s view, as well as that of several other industry analysts, the decrease in private sector lending will have a material, long-term impact on the economy,” added Olaka. “All this points to the fact that we must replace this law with measures that meet the needs of all stakeholders. Before the law came in to place, the average lending rate was approximately 17 percent and it was even 15 percent a few years ago. We therefore believe that rates can come down in a sustainable way that does not limit access to much-needed capital for the core drivers of our growth and employment,” he said.
In the Financial Year 2018/2019 Budget Statement, Cabinet Secretary of National Treasury and Planning Mr. Henry Rotich stated that the Government would put in place a package of reforms aimed at optimizing lending to the private sector while at the same time encouraging innovation in the financial services sector. In place of the interest rate caps, Mr. Rotich noted several measures including the establishment of a National Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MSMEs), and the introduction of a Financial Markets Conduct Bill, 2018 that comprehensively addresses consumer protection and unregulated lending in the financial sector.
The Cabinet Secretary is expected to deliver his remarks today at the Interest Rate Debate. Other speakers include Hon. Moses Kuria, Member of Parliament of Gatundu South, Hon. Jude Njomo, Member of Parliament of Kiambu Central, Joshua Oigara, Group CEO of KCB, John Gachora, Group CEO of NIC Bank, Sachen Gudka, Vice Chairman of Kenya Association of Manufacturers, development economist Anzetse Were, and Kwame Owino, CEO of Institute of Economic Affairs.
The debate will be streamed live from 7pm to 8:30pm via social media on the Kenya Bankers Association, Fanaka TV and KTN Kenya FaceBook pages, as well as on Twitter under the hashtag #InterestRateDebate. The public is invited to engage in dialogue and share their comments on measures they would like to see banks put in place.