Kenyan banks won’t keep ‘crying’ over rate cap law, says KCB

A KCB Bank Kenya ATM displays M-Pesa banking service information outside a bank branch in Mombasa (file). KCB’s net interest income jumped 10% in the first quarter while profit rose 14%.

Kenyan banks will keep growing annual profits at double digits even if lawmakers choose to retain a rate-capping law that the industry says is hurting lending to businesses and individuals, the head of the nation’s biggest lender said. While President Uhuru Kenyatta, his Treasury Secretary and the central bank governor also concede the limits have curbed credit in East Africa’s biggest economy, members of parliament have vowed to maintain the law, saying banks are still profiting from excessive interest charges on loans.

Banks will keep lending to the government, a less risky borrower compared with the private sector, according KCB Group Ltd chief executive officer Joshua Oigara. “Banks cannot stay on and cry every time about the rate model,” Oigara said in an interview in the capital, Nairobi. “We need the rate cap to be removed, but banks will continue running their businesses as we have demonstrated in the last two years. This year we are looking at over 20% growth” in earnings, he said.

KCB’s net interest income jumped 10% in the first quarter while profit rose 14%. Equity Group Holdings Ltd, Kenya’s second-biggest lender, grew profit by 20% and income from lending by 10%.Kenya needs the law – which caps commercial lending rates at 4 percentage points above the prevailing monetary policy rate – revoked to retain access to an International Monetary Fund facility. It’s removal will unlock bank vaults to facilitate resumption of lending, which is key in achieving the government’s Big Four agenda – development proposals to raise the number of low-income houses, improve food production, provide healthcare for all and expand manufacturing’s share of economic output. “Effectively, there is a likely challenge in getting funds flowing into the private sector to accelerate those projects,” Oigara said. “They are very much linked.”

KCB, which is also Kenya’s biggest mortgage lender, could benefit from the five-year programme, especially by providing home loans for the 500,000 units the government plans to have constructed before the end of 2022. The nation has a paltry 30,000 outstanding mortgage accounts, Oigara said. The state plans to set up the Kenya Mortgage Refinance Company, an agency to finance home-loan providers, which it will own jointly with banks, credit unions and development finance institutions. Once established, banks will have access to long-term financing, potentially increasing the number of mortgage accounts to 1mn during the next five years, Oigara said.

Sources and photo-credits: Bloomberg, Gulf Times