Kenya Commercial Bank (KCB) Group CEO Joshua Oigara has allayed fears that banks will gang up and charge high-interest rates on loans dished out to businesses across the country following Tuesday’s decision by Parliament to scrap the cap on interest rates levied on loans.
While lauding parliament’s decision, Oigara said that Kenyans should not expect a sudden increase in interest rates saying that speculation that interest rates will go as high as 20% is wide off the mark.
“The macroeconomic and business environment where we are today does not at all support an environment of high rates,” said Mr. Oigara, who doubles up as the Chairperson of the Kenya Bankers Association (KBA) in a press dispatch.
Mr. Oigara said allowing banks to price the risk of borrowers is important and the banking industry has over the last two years learnt a number of lessons in that regard.
“As an industry, we are in a new equilibrium. Banks have reached a new business model. We lend to current customers at 13% because we have accepted their risk profile as an industry. That will not change the next day,” Mr. Oigara highlighted.
“So the fear that there will be a massive repricing the next day is not based on the truth,” he added.
The net effect of the capping has been a credit squeeze and a slowdown in lending especially towards Small and Medium Enterprises (SMEs), whose risk profile is perceived to be higher than that of bigger and more established businesses.
“Banks are ready to lend. So we are going to see more people including SMEs start accessing credit in the industry. Customers with high-risk profiles we may see a 2-3% increase. We are not going to see a massive change. As a leader in the industry, we don’t see an opportunity to go back to the old behavior of high rates,” Mr. Oigara added.
On Tuesday, MPs opposed to scrapping of the cap were defeated as a two-thirds majority was required to shoot down the president’s memorandum. Only 166 legislators were in parliament during the chaotic session.
Industry experts have lamented that the cap had created a credit squeeze in the economy and called for speedy resolution of the matter.