This archive report was first published on 9 November 2019.
On November 7, 2019, President Uhuru Kenyatta assented to the Finance Bill, which included clauses to scrap the interest rate capping rules. This move is expected to have a positive impact on the banking sector, leading to higher margins and accelerated asset growth.
According to an analysis by Renaissance Capital, Co-op Bank's shares are projected to rise by 36.1% to reach a target price of Sh21.40. Equity Bank's share is expected to increase by 21.4% to hit Sh58.30, while KCB is projected to rise by 17.6% to stand at Sh56.50 per share.
Investors expect stronger growth by banks following the law review, which will allow them to set their own lending rates. This movement has resulted in an increase of the Nairobi Securities Exchange's (NSE) market capitalisation to Sh2.53 trillion, the highest since last August.
While local banks have stated that they will hike the cost of loans, they are unlikely to reach the pre-capping era interest rates of up to 30%. KCB noted that risky borrowers will see interest rates increase to 16%, compared to the 13% maximum when rate caps were in place.
“The impact on the banking sector will be positive, it should result in higher margins and acceleration of asset growth, which should translate to stronger earnings growth and profitability,” said Ronak Gadhia, Director of EFG Hermes Sub-Saharan Banks.
