This archive report was first published on 2 January 2020.
As the country enters a new year, the banking sector is still grappling with the implications of the repealed interest rate capping law. The law, which was scrapped in November, had imposed a cap on interest rates charged by commercial banks.
Despite the Central Bank of Kenya (CBK) cutting the benchmark rate from 9 percent to 8.5 percent in December, banks have yet to adjust their lending rates. The CBK's move was seen as a signal to the banking sector to lower their interest rates, but so far, there has been no significant change.
Barclays Bank transition programme director Anthony Mulisa said the bank expects the CBK's Monetary Policy Committee to continue signalling a lower interest rates environment in 2020. However, he noted that the bank will have to watch out for liquidity in the market before making any decisions.
Kenya Bankers Association chief executive Habil Olaka said bank loans can be priced by benchmarking the CBR, government borrowing, or even an internally generated mechanism. The association's stance suggests that banks have the flexibility to adjust their interest rates based on market conditions.
According to sources, momentum is building among banks to use government T-bills as a basis for increasing loan rates. With the Kenya Revenue Authority behind its tax target and huge debt repayment obligations ahead, the Treasury is expected to significantly raise its borrowing in the domestic market.
