Uhuru Signs Interests Capping Bill

[Omollo]

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I am still digesting this. I want to establish that it is not some act playing for the gallery.

[RVtitem]

How will it affect bank profits? Reducing interest to base rate+4% is huge.

This will surely trigger banks to merge for survival through economy of scale.

[Omollo]

I just heard you can now buy bank shares for spit. There are so many on offer right now. Way to go. Let some of them relocate to other countries and face stiff oversight.

Banks became Chang'aa business in Kenya. Setting up a Chang'aa selling den is the easiest job creation initiative in Kenya. Next to it is a bank

How will it affect bank profits? Reducing interest to base rate+4% is huge.

This will surely trigger banks to merge for survival through economy of scale.

[RV Pundit]

Brave move. Let this go on for 1yr at least. Banks have shown they can innovate themselves out of trouble. They need to work hard now. Improve efficiency, deploy more technology, lower cost and find ways & means to be profitable from the restricted margins. The key is to innovate. Those that fails - will go belly up. @14% that still is a good deal..goK should crack the pressure down to 10%...and bankers should demand more reform in collatoral end...quick turn around of cases, more courts, more security in title deeds.

[Gumzo]

Will this new 14.5% cap on interest rate affect  existing loans ama its only on new loans from now onwards ?

[RV Pundit]

Depend. If the rate is flexible - like most loans - then sure. If it is fixed - then no.

Will this new 14.5% cap on interest rate affect  existing loans ama its only on new loans from now onwards ?

[Omollo]

Now I am glad the banks have not yet seen fit to hand this to a professional spin doctor.

Mr. Olaka lost his space once the law was enacted. From the time the law went to Uhuru to this moment, the banks should have hired a spin doctor. See below how Olaka is ruining it all for the banks. Such a statement which seeks to give the impression that the interests shall continue to remain high regardless of the new laws may be technically correct but a terrible selling point. Just shows the banks as no better than scrooge and defiant to the end.

Some people just don't have it in them, do they?

http://www.the-star.co.ke/news/2016/08/25/interest-rates-law-does-not-affect-existing-loans-says-bankers_c1409489

[veritas]

Most banks in Kenya operate like loan sharks anyway- they'll just sack more staff, higher wait times for customers. .. charge higher rates for transactions/annual membership rates etc. to keep afloat much in the way most of Kenya's economy are black market commodities eg. expired drugs, food, goods etc. Customers will have to wait for 3 hours as opposed to the current 1 hour and pay hefty fees per transaction/membership to who knows how innovative they plan to get.

This capping is ill-advised.

Banks would need to operate incognito for commercial/industrial/personal loans to stay afloat. Situation is like an abortion clinic. Even though abortion is illegal there are girls bleeding from botched self abortion attempts. When supply doesn't meet demand there are consequences. Unless banks want to be poached by foreign owners who can supplement lost doe for a few years- expect more underground activity- as opposed to providing incentives to keep interest rates down with the backdrop of good market/share/stock practices/good govt re/deregulation policies.

[veritas]

Mind you banks are commercial entities and set interest rates according to the market and its competitors. They don't have to comply to this bill if there's reasonable evidence to suggest it'll drive them bankrupt/hurt operations. This bill can't be enforced. They can sue the govt for compensation. Unfortunately Uhuru owns the courts and can buy judges to unlawfully imprison anyone who stands in his way. Best to just go underground.

[Omollo]

Banks are already doing all those things you mention. They have laid off staff and continue to do. It is impossible to find a 40-year-old teller in the bank. They hire young attractive girls and boys and once they get their first wrinkle they get fired pronto by some crap called golden handshake.

They finance all the illicit businesses in the Crime Dictionary. Money laundering is the biggest business which they work alongside "supermarkets" that have mushroomed everywhere.

So when it comes to profitability, nothing in the said act will diminish their money haul. I expect them to comply but what is uncertain is the role CBK will play.

[veritas]

40 year olds give out loans, assess market risks etc. most of what a bank does is behind the teller. Teller workers even in Australia are 20 something year old students working part-time who look like air hostesses but get paid minimum wages. .. less than factory workers or cashier workers at a supermarket. Banks can get away with it because most teller workers are economics/commerce students in it for work experience. Typically at a teller shift you have 1 old person (old lady- trainer/mentor) and the rest work experience students.

[hk]

 Banks we just be fine. The market overreacted on this . What is going to happen is the banks will binge on T bonds. Case in point is when uhuru was signing the interest capping bill, the cbk was auctioning 10yr 25b t- bond at 15.039% coupon https://www.centralbank.go.ke/index.php/treasury-bond-results/lates-resultts.  Why would a bank lend to individuals at 14.5% instead of government at 15%? However that rate will start going down as banks increasingly compete for t-bonds and t-bills bringing the rate lower.
The segment of lending that's growing is mobile loans which aren't being capped this will continue to grow. Those  loans are expensive and short term, no serious business can grow by borrowing short term. After next year general election this law will have to reviewed and the government to address the serious fundamental problems with the economy and financial sector.

[Gumzo]

Depend. If the rate is flexible - like most loans - then sure. If it is fixed - then no.

Will this new 14.5% cap on interest rate affect  existing loans ama its only on new loans from now onwards ?

Banks say awaiting guidelines on existing borrowers after rate cap  the bastards !!!!

[veritas]

Those  loans are expensive and short term, no serious business can grow by borrowing short term.

Investment loans are short term. Like with property investment portfolios, banks offer loans ranging from 2 to 7 years. Banks have separate interest rates and loan requirements for commercial/investor portfolios. Typically maximum 7 years for property investment loan requiring a higher down payment like 30% and higher interest rates near double. Property investors buy dilapidated properties, renovate, then sell usually within 2 years. Liquidating the property or give it to the bank should it not perform well isn't that much of a loss for property investors. It's not unusual to hear of couples owning 5+ investment properties these days after selling some, losing some properties. It's the best way to develop a sufficient lump sum for early retirement. I have friends who are retired now in their 30s since they began investing in property in their early 20s.

[Georgesoros]

In my prediction, there is going to be a serious shortage of money which will cause a contraction of the growing economy. Banks lend at higher rates because of risks associated with the growing economy.

[hk]

Those  loans are expensive and short term, no serious business can grow by borrowing short term.

Investment loans are short term. Like with property investment portfolios, banks offer loans ranging from 2 to 7 years. Banks have separate interest rates and loan requirements for commercial/investor portfolios. Typically maximum 7 years for property investment loan requiring a higher down payment like 30% and higher interest rates near double. Property investors buy dilapidated properties, renovate, then sell usually within 2 years. Liquidating the property or give it to the bank should it not perform well isn't that much of a loss for property investors. It's not unusual to hear of couples owning 5+ investment properties these days after selling some, losing some properties. It's the best way to develop a sufficient lump sum for early retirement. I have friends who are retired now in their 30s since they began investing in property in their early 20s.

That's Australia not kenya.  The short term mobile loans I am talking about are only up to 6 months.

[hk]

David Ndii take on the interest capping bill http://www.nation.co.ke/oped/Opinion/interest-rates-bill-politics-will-not-fix-economic-problems/440808-3359274-a4wh4nz/index.html . I agree with him about addressing the cause of high interest rates instead of arbitrarily capping the rates. I especially like his take on mobile money.

"Whether mobile phone micro-loans survive will depend on whether banks can get away with disguising interest as fees. If, however, the regulators enforce strict compliance, the product may become unviable. This would be a big blow to the micro-enterprise economy. The political blowback would be vicious"

[Nefertiti]

Yes hk, the VIABILITY of lending to small fish is our immediate danger. For instance "mkopo wa salo" must include considerable risk charges which impact the rates. Many products may simply be pulled off the table. On the other hand I don't fully trust the bankers raking in billions while whining about the environment. Innovation may well make the difference, our competitive sector being the beauty. We shall see.

[Omollo]

My understanding is that the act simply sought to limit the profits the banks gorge themselves beyond the CBK rates. Thus if CBK raises it to 20 we shall expect 24% and if it brings it down to zero, we shall expect 4.

[RV Pundit]