Experts support loan interest rate capping

Accountants have opposed plans to abolish interest rate capping introduced by the Central Bank of Kenya a year ago.

The Institute of Certified Public Accountants of Kenya (ICPAK) says the capping is good for the country's economy.

Banks have been pushing for the scrapping of the rate capping, saying it was not good for business in a liberal economy.

But ICPAK Chairman Julius Mwatu argued that fears cited by the banks were unfounded because the benefits of capping outweighed any hiccups experienced.

Speaking at a media briefing in Kakamega County yesterday, Mr Mwatu said it was too early to accurately determine the impact of capping of interests on any sector of the economy.

“The ongoing debate on the effect of the Banking (Amendment) Act 2016 capping interest rates published by Central Bank of Kenya on the economy is healthy. However, it must be done with caution,” said Mwatu.

Stakeholders have been concerned with the decline in private sector credit from 2.2 per cent in April 2017 to 1.4 per cent in July. The trend reversed to grow at 2.0 per cent in October 2017.

The accountants' forum argued that concerns raised by the opponents of the rate capping could be valid but a proposal for its scrapping should ensure that the initial objectives of the capping were maintained.

Private sector

“Analysis from the Central Bank of Kenya’s Monetary Policy Committee report indicates that private sector lending had started declining in 2015 before the introduction of interest rates cap and could be attributed to other factors," they said.

Mwatu explained that the stock of gross domestic debt increased by Sh294.2 billion from Sh1,926.2 billion in December 2016 to Sh2,220.3 billion in December 2017.

“Of these, Sh1,125 billion was attributed to commercial banks by December 2017,” he said.

The Monetary Policy Committee report dated October 2017 cites weak performance of some sectors of the economy and increased usage of alternative funding as factors that might have led to the decline in private sector credit, according to Mwatu.

Other mechanisms

“We believe that the discussion to lift interest rate caps should be preceded by other mechanisms that will allow a self-regulatory regime such as the use of credit rating information,” he said.

The accountants welcomed the signing of the African Continental Free Trade Area (AfCFTA), a pact Mwatu said would remove barriers to trade and allow free flow of goods and services.

“In theory that should boost commerce, growth and employment and facilitate realisation of Agenda 2063 and Sustainable Development Goals,” said Mwatu.

He was accompanied by ICPAK Vice Chairman Rose Mwaura and Chief Executive Officer Edwin Makori among other officials.