Kenya central bank sets stage for scrapping of interest rate caps

NAIROBI, March 21 (Xinhua) -- Kenya is setting the stage for the removal of interest rate caps on bank charges set in September 2016, with a central bank research showing the ceiling has impacted negatively on the economy.

The bank in readiness for the scrapping of the law announced Wednesday that it carried out a study and found the caps have done more bad than good.

Consequently, the apex bank has invited banks, ordinary Kenyans and other financial institutions to comment on the research.

"The interest rate caps infringe on the independence of the Central Bank and complicates the conduct of monetary policy. It is found that under the interest rate capping environment, monetary policy produces perverse outcomes," said the bank in the report Wednesday.

The bank noted whereas demand for credit increased following the capping of lending rates, credit to the private sector has continued to decline.

"The structure of revenue of the banks has started to shift away from interest income. In addition, some banks have exploited the existing approval limits to increase fees on loans in a bid to offset loss in interest income," added the bank.

It further noted that small banks have experienced significant decline in profitability in recent months, a situation that complicates their viability.

"Exclusion of small enterprises by the commercial banks will lower growth by 0.4 basis points in 2017 mainly on account of the reduced access to credit," said the research. Enditem