Kenya's Biggest Bank Says Rate Caps Risk Destroying Industry

(Bloomberg) -- Government-imposed caps on commercial interest rates risk destroying Kenya’s banking industry unless they’re addressed soon, the head of the country’s biggest lender said.

KCB Group Plc wants the ceiling raised to more than the current 400 basis-point limit above official rates, an easier route than seeking a repeal of the law in parliament, Chief Financial Officer Lawrence Kimathi said in an interview Thursday in the capital, Nairobi. The International Monetary Fund says the controls have starved credit to businesses and undermined the effectiveness of Kenya’s monetary policy.

“If it goes on for another one, two years, it’s going to destroy the financial services sector,” Chief Executive Officer Joshua Oigara said at a briefing to announce the bank’s full-year results. The bank posted a 0.1 percent drop in full-year profit as income from loans declined 2.9 percent to 48.4 billion shillings ($478 million).

Kenyan President Uhuru Kenyatta introduced the cap in August 2016 to spur access to credit in East Africa’s biggest economy. The move has had the opposite effect, exacerbating dwindling private-sector credit growth that was already slowing because of tighter industry regulations and the collapse of three lenders in eight months.

KCB is optimistic the law will be reviewed by the end of the year, amid expectations that amendments will be included in Treasury Secretary Henry Rotich’s 2018-19 budget statement due in June.

“It’s going to be driven through the National Treasury,” Kimathi said. “We’ve sort of been relegated to the backseat now in terms of pushing it.”

Growth in credit to the private sector, which slowed to the weakest pace since 2001 when it increased 2.2 percent in July, may return to more than 10 percent once the law is reviewed, Kimathi said.

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