Treasury chief turns heat on banks over interest rates

By MACHARIA KAMAU

KENYA: Treasury Cabinet Secretary Henry Rotich has directed the Competition Authority of Kenya (CAK) to look into cartel-like behaviour of commercial banks that is fuelling high interest rates.

Rotich yesterday tasked CAK to review competitiveness in the banking industry and establish whether the high interest rates are market-driven or a factor of collusion by commercial banks. 

While there are 43 commercial banks, which would mean a highly competitive financial services industry, interest rates remain high in the country, pointing to possible complicity among banks to retain them at that level.

“The high interest rates are a concern and are certainly slowing down economic growth,” Rotich said.

“There is urgent need for CAK to review competition in the banking sector,” he said, adding that the high spread in interest rates is also a concern whose root causes must be dealt with fast.  The interest rates spread – or the difference between lending and deposit rates – currently stands at 10.57 per cent – and is amongst the highest in the continent.

Primed his guns

Rotich, who spoke yesterday during the launch of a three-year strategic plan by CAK, also primed his guns on other players including retailers and venders of agricultural inputs for using their dominance to manipulate market prices.

Speaking at the same function, Industrialisation Cabinet Secretary Adan Mohamed said there is need for some action to ensure dominant players do not take advantage of consumers. “The Competition Authority should safeguard consumer interests especially against large companies operating locally by ensuring that they don’t grow at the expense of the public,” he said.

Rotich’s sentiments came a day after President Uhuru Kenyatta and his deputy William Ruto raised concerns over the cost of borrowing in the country.

The duo on Monday noted that high interest rates had increased the cost of doing business in Kenya while the high interest rate spread had acted as a disincentive to save and borrow from commercial banks.

Uhuru hinted at a law designed to give Central Bank more muscle to rein in banks on high interest rates.

The proposed law seeks to grant CBK more powers to monitor how commercial banks calculate interest on loans. However, the Kenya Bankers Association (KBA) has taken a dim view of a move to cap interest rates. KBA Chief Executive Habil Olaka said capping interest rates would be counter-productive because banks would then only advance credit to borrowers with low credit risk profiles.