NAIROBI, Sept 2 Commercial banks in Kenya must
start applying a new cap that will limit their lending rates to
4 percentage points above the central bank's benchmark interest
rate from Sept. 14, an official notice said on Friday.
Several banks, including KCB Group, Co-operative
Bank of Kenya, CFC Bank have already told customers
they will lower rates on existing and new loans after President
Uhuru Kenyatta signed the cap into law on Aug. 24.
Businesses in the East African country have long complained
that high commercial lending rates, which average 18 percent or
more, hobble corporate investment, while individuals say the
high cost puts borrowing out of reach of many.
Kenya's main interest rate is currently 10.5
"A bank or a financial institution shall set the maximum
interest rate chargeable for a credit facility in Kenya at no
more than four percent (over) the base rate," the amended
banking law, officially published on Friday, said.
Chief executives of commercial banks who fail to comply
would face a fine of 1 million shillings ($10,000), a year in
jail, or both.
The new banking law also requires banks and financial
institutions to pay a minimum interest rate of 70 percent of the
central bank's base rate on deposits.
The Treasury and the central bank had opposed the cap on
commercial lending rates, which was written into the law by
parliament, for fear it would cause banks to restrict lending.
But Kenyatta said on Aug. 24 that banks had reneged on past
pledges to lower their rates, which had given Kenyan lenders one
of the highest returns-on-equity in Africa even though its
financial markets are among the continent's most efficient.
(Reporting by George Obulutsa; Editing by Catherine Evans)