Kenyatta urges commercial banks to offer affordable credit
14 September 2016, 20:22
Nairobi (Xinhua) -- Kenyan President Uhuru Kenyatta on Wednesday urged commercial banks to work closely with the Central Bank of Kenya (CBK) to provide affordable credit to Kenyans.
Kenyatta expressed concern that interest rates in Kenya had remained higher than in comparable middle-income economies despite the deepening of financial markets and the recent introduction of credit-information sharing.
"Consumers are yet to benefit from reduced cost of credit. The concerns led to recent legislation capping commercial bank interest rates," he said during an event in Nairobi marking 50 years since the CBK was founded.
The commercial banks have agreed to comply with the new law which seeks to cap interest rates charged on loans and deposits.
The Kenya Bankers Association however said the bank interest rate capping law will reduce the rate of growth of loans.
The Banking Amendment Bill 2015 which was signed into law by President Kenyatta in August effectively limits the interest rates charged by banks to four percent of the Central Bank Rate (CBR).
With the CBR currently at 10.5 percent, banks are not allowed to charge higher than 14.5 percent as interest on credit.
Several borrowers had been on a flexible interest rates regime since their interest rates vary according to the prevailing market conditions and thus the expectation that they will be moved to the new regime of a maximum 14.5 percent once it comes into force.
But President Kenyatta said more reforms were necessary in the financial sector to create a vibrant and competitive financial sector that drives high savings and supports investment.
"We experienced banking crises in the 80's and early 90's, resulting largely from weak corporate governance, insider lending, and poor asset quality and management. The Central Bank played a key role in coming up with appropriate reforms to address the weaknesses and foster financial stability," he added.
The president also said Kenya's financial sector was widely recognized for its leadership in leveraging mobile phone technology. Consequently, financial inclusion has increased substantially, with access to formal financial services having grown from 26 percent in 2006 to over 75 percent currently, according to him.
President Kenyatta lauded the CBK for the role it played in the country's development. "Over the last 50 years the Central Bank of Kenya has supported the country's economic growth and poverty reduction agenda by promoting price stability and fostering a stable financial system," he said.