Members of Parliament yesterday rejected bank executives’ counter-proposals to borrowers meant to stop a law capping interest rates and vowed to marshal the required two thirds majority needed to quash a presidential veto.
Led by Jude Njomo, the sponsor of the Bill that seeks to cap interest on loans at not more than four per cent of the Central Bank of Kenya (CBK) base rate, the MPs dismissed banking industry proposals to lower the current lending rates by 100 basis points as “a mere public relations gimmick”.
Mr Njomo, the Kiambu Town MP, rallied five colleagues to dismiss the proposals by Kenya Bankers Association (KBA) to among others set aside Sh30 billion for lending to small and micro-enterprises (SMEs).
The MPs said the belated KBA proposals were meant to arm-twist President Uhuru Kenyatta into rejecting the Banking (Amendment) Bill, 2015 and hoodwink Kenyans into believing that capping interest rates will hurt the economy.
Mr Njomo, Kimani Ichung’wa (Kikuyu), Kareke Mbiuki (Maara), Abdikadir Aden (Balambala) and Victor Munyaka (Machakos) vowed to marshal a two-thirds majority (233 MPs) to overturn presidential veto should Mr Kenyatta send the Bill back to Parliament.
“What the banks are doing amounts to arm-twisting the President to rejecting the Bill. How sure are we that the Memorandum of Understanding signed between KBA and the CBK Governor Patrick Njoroge will stand if not legislated by Parliament?” Mr Njomo asked.
Bank executives had on Wednesday reacted to Mr Njomo’s Bill by proposing a raft of measures aimed at easing public pressure on Mr Kenyatta not to sign the Bill into law.
Commercial banks announced the creation of a Sh30 billion fund for lending to SME at “friendly interest rates” on Wednesday. Each bank is to contribute to the fund based on their current lending to SMEs.
The banks also promised to lower the SMEs lending rates to a maximum of 14.5 per cent in the next one year and to ensure that Sh10 billion out of the Sh30 billion fund is set aside for women and youth.
Mr Njomo’s Bill also seeks to set the floor for deposit rates at 70 per cent of CBR, a move that would significantly narrow the lenders’ spreads.
If Mr Kenyatta assents to the Bill, as passed by the National Assembly, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent.
Mr Njomo and his counterparts accused banks of perfecting deception whenever the issue of regulating lending rates is raised and termed the bank executives’ latest offers as “a knee jerk reaction meant to persuade the President not to sign the Bill into law”.
“Nearly 20 years ago, when the Donde Bill was introduced, bankers promised to lower the rates but this has not happened to date. They are again offering the same solutions they offered two decades ago,” Mr Njomo said.
Without a legal backing, the MPs said, the KBA proposals as contained in their MoU with the CBK “have no legs to stand on”.
Mr Njomo added that despite the CBK promising two years ago that the establishment of KBRR would bring interest rates down nothing has so far happened in the pricing of credit.