CBK to Reverse the Interest Rate Cap on Loans Soon, says Dr. Njoroge

Kenyan banks are set to benefit from a reverse of the interest rate cap on loans that was amended last year by the Banking Act.

The move will be so as to allow the market to determine the pricing of credit according to the Central Bank (CBK) Governor Dr. Patrick Njoroge.

Speaking to the press after meeting investors, Dr. Njoroge said that banks will be handed back a free hand in pricing the cost of loans since the impact has been problematic.

“It is in our interest as a country and CBK to work to reverse these measures and go back to a regime with freely determined interest rates but in a disciplined environment,” said Dr. Njoroge.

Dr. Njoroge reiterated that the issue of capping interest rates turned out to be problematic.

“It is clear to us that this has been problematic in many ways. I can tell you the direction but I cannot tell you when,” added Njoroge.

The governor disclosed that he had assured investors that the country is ‘completely wedded’ to market-based policies and that the rate cap was just a temporary deviation due to the indiscipline that had been observed in the credit market.

Dr. Njoroge said he had conducted discussions with banks on their new business models in a quest to have discipline in the credit market and hopes this will yield favorable rates.

Banks were supposed to have submitted their new business models to CBK by the end of April and the CBK believes this will install credit discipline and prevent oppressive interest rates. The models were to be discussed and approved by respective boards

The Governor called for patience in the sector as the CBK concludes the process, which will then have to be passed through Parliament.

“Things don’t develop in a monotonic way, where everything is going down or up. There are always bumps along the way,” he said.