Capping of Interest Rates May Favor the Biggest Banks

A decision to cap Kenyan interest rates may favor the biggest banks as small lenders will struggle to raise cheap deposits to fund lending, according to Equity Group Holdings Ltd. Chief Executive Officer James Mwangi.

At least 30 of Kenya’s 42 lenders may have difficulty paying the minimum for deposits as demanded by a new law on interest rates that came into effect on Sept. 14. The legislation limits borrowing costs at 400 basis points above the Central Bank Rate that’s currently at 10.5 percent, and compels banks to pay at least 70 percent of the CBR on deposits.

“Tier II banks and those with low deposit rates will struggle to attract deposits, will struggle to lend,” Mwangi told analysts at a briefing in the capital, Nairobi, referring to mid-sized lenders.

Micro-finance institutions and savings and credit co-operative societies, or Saccos, “will struggle to defend their market share.”

Read: Capping of Interest Rates To Hurt Small Banks

Equities

Market activity bucked yesterday’s trend as the NSE Indices were up while the value of shares traded declined.

The NSE 20 Share index added 17.93 points to end the day at 3239.80 points from 3221.87 points previously while the NASI gained marginally to 131.63 points from 131.34 points before.

The NSE 25 Share index improved by 13.99 points to settle at 3461.71 points from 3447.72 points on Wednesday. Market capitalization moved up albeit slightly to 1895.469 billion shillings from 1891.221 billion shillings earlier whilst equity turnover decreased to 0.40 billion shillings from 0.57 billion shillings, owing to a drop in the volume of shares traded.

Read: Fahari Income-REIT Maintains Top Position At The NSE Today

Currencies

The Kenyan shilling fell slightly against the USD as it closed the day at a mean of KES 101.27 compared to an average of KES 101.18 yesterday; well within our expected trading range of 101-102 shillings the medium term as there are no expected macroeconomic shocks that can warrant its drop.

It marginally weakened against the Pound and the Euro after the ONS reported a 0.2 percent decline in month-on-month retail sales in the UK beating expectations for a decline of 0.4 percent, between July and August with non-food stores contributing the biggest decline. This is anticipated to help the Sterling remain supported against the Euro and US Dollar.

Read: Shilling Down amid Continued Demand for Greenback from Importers