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Kenya's parliament passes law to cap bank lending rates

28 July 2016, 17:01

Nairobi (Reuters) - Kenya's parliament on Wednesday passed amendments to its banking act to cap commercial banks' lending rates at 4 percentage points above the central bank's benchmark rate, a legislator told Reuters.

Businesses often complain that high commercial lending rates, often around 18 percent or more, stifle corporate investment. Individuals say high rates put borrowing for home loans, for example, out of reach of many.

The central bank, whose benchmark lending rate is now 10.50 percent, had urged banks to lower rates but did not set a cap.

"The bill unanimously received 100 percent (support) from the legislators," Jude Njomo, the lawmaker who sponsored the changes, told Reuters.

Bankers say a fixed cap will push them to cut some lending to businesses deemed riskier, hurting economic activity.

The amendments to the banking act, which will be forwarded to the president for assent, also set the minimum rate for bank deposits at 70 percent of the central bank's benchmark rate.

Banks cite a range of reasons for charging elevated rates, such as the difficulty of obtaining a detailed history of new clients. They also say big customers, who they know well, can secure much lower rates than those commonly cited.

Njomo had told Reuters earlier on Wednesday before the final passage that the changes would become effective as soon as the president assents.

Chief executives of commercial banks who fail to comply will face a fine of 1 million shillings ($10,000), a year in jail, or both, Njomo said.

The Kenyan parliament first attempted to control commercial lending rates two decades ago but past attempts failed.

- Reuters

Tags banking

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