Friday 20 April 2012

Kenya parliament rejects bid to cap banks' rates

Kenya's parliament has rejected a proposal to cap commercial banks' interest rates, ending months of anxiety by bankers who feared the move would crimp their earnings and lead to credit rationing.

The house voted 58-17 against introducing amendments, proposed by some lawmakers, that would cap the interest rate at which banks can lend at no more than 400 basis points above the central bank rate (CBR).

The proposed changes also included setting the minimum deposit rate at 70 percent of the CBR.

An impasse over the amendments to the government's Finance Bill had held up the bill's passage through parliament, threatening to stall funding to the government, which has to get authority from parliament to implement its fiscal budget.

Legislators who made the proposals claim banks are charging borrowers too much interest while commercial banks have raised their interest rates to about 25 percent from 15 percent since October.

The Kenya Bankers Association, which strongly opposed the move to cap rates, was not available immediately for comment, following the vote in parliament late on Thursday.

Businesses in the east African nation of 40 million perennially complain of high credit costs with spreads between borrowing and lending rates averaging around 10 percentage points.

Martin Ogindo, the legislator who first brought the proposal to cap rates, vowed to fight on by refining his motion and submitting it again at a later date.
                                           Culled:Reuters

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