Measures to tame usury among banks welcome

It is always good news that commercial banks in the country continue to post impressive profits.

This is reassuring as it means that shareholders – a large number of whom are Kenyans – are assured of good returns on their share capital. Good profits will also have the overall effect of spurring economic growth, thereby creating jobs for more Kenyans. Indeed, banks have been at the forefront in job creation in the last couple of years.

Despite these successes, banks have lately come under heavy criticism for their usurious lending rates even when Central bank rates have been falling.

It pains the nation all the more to notice that even as the unbroken profitability run continues in the banking industry, it is becoming increasingly difficult for players in other sectors of the economy to access credit for expansion from banks.  This is largely due to the exorbitant repayment rates charged by banks at a time when depositors’ cash attracts little or no interest at all.

According to the 2011 CBK Bank Supervision report, the interest rate spread – the difference between the rates charged on loans and rates on deposits – widened to 13 per cent at the end of December 2011 from 10.3 per cent the previous year.

It also sad to note that this spread widened at a time when the average lending rate for the banks zoomed from 13 to over 20 per cent.

It will also be recalled that attempts to peg bank lending rate at four points above the treasury bill rate – first by former Gem MP Joe Donde and later by his successor Jakoyo Midiwo  – have  been thwarted, leaving the banks having a smooth as the rest of the economy suffers.

Caution urged

Clearly, something needs to be done to ensure that even as we urge the banks to continue making profits for their shareholders, other sectors of the economy are not left behind. And while we urge caution in promulgation of policy measures to arrest the obtaining situation, we appreciate that something needs to be done.

To that end, the news that the Treasury is contemplating a new raft of measures to solve the problem must sound like good music to our ears.

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