Kenyan MPs submit proposal to cap bank's lending rates
However, the CBK said interest rate controls would be "harmful and ineffective".Kenyan MPs, through a legislative proposal filed by Sirisia MP John Waluke, are looking to cap interest rates to five per cent above the Central Bank Rate, which is currently set at 11.5 per cent.
The proposal comes after the regulator last week published the lending rates of each commercial bank, which showed that lenders were charging up to three times the reference rate set by the CBK.
The MPs say banks have been ignoring repeated demands from the Central Bank of Kenya (CBK) to lower the cost of their loans, although it lowered its rate several times.
However, CBK governor Patrick Njoroge said interest rate controls would be "harmful and ineffective", the Daily Nation reports.
He said he wants Parliament to give banks more time to lower their lending rates instead of imposing caps, arguing that the market will force banks to re-price their loans or lose their dominance.
"Right now the banks are under a lot of pressure from the population, from you (MPs) and from us as the regulator. They have large margins but they will adjust or lose their positions," he said on Tuesday.
He argued that capping rates will encourage an informal system where banks will abandon risky loans and ration credit, which could lead to the emergence of loan sharks.