Capping of interest rates will be catastrophic

[Higgins the genius]

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1. Banks would rather lend to government, corporates and high net individuals than common Mwananchi who can default easily.

2. Unlike other jurisdictions where interest rate are low,  Kenya does not have synchronized data of an individual. Those countries when you borrow in banks,  they banks knows which properties they own, where they are etc.

3. The premium collateral in Kenya is land.  You know how the registry is.  One parcel with 2 or more genuine titles.

4. Banks have shareholders who expect returns.  You reduce the profits and the shares dips.  Banks account for 40% market capitalization at the NSE.  If they dip the market crumbles

There are alot of things that need to be sorted out first before capping those rates.

[Simanova]

I have never understood why ALL the banks charge the same interest rates. That is evidence of collusion which should result in heavy earth shaking fines and jail term. What is the so called NSI and DCI doing if not documenting this? I guess they have more serious business like CORD

1. Banks would rather lend to government, corporates and high net individuals than common Mwananchi who can default easily.

2. Unlike other jurisdictions where interest rate are low,  Kenya does not have synchronized data of an individual. Those countries when you borrow in banks,  they banks knows which properties they own, where they are etc.

3. The premium collateral in Kenya is land.  You know how the registry is.  One parcel with 2 or more genuine titles.

4. Banks have shareholders who expect returns.  You reduce the profits and the shares dips.  Banks account for 40% market capitalization at the NSE.  If they dip the market crumbles

There are alot of things that need to be sorted out first before capping those rates.

[RV Pundit]

Indeed a complex issues that could have mess the economy. I rather the president listened to economic experts than Mps here. This is where you need CBK, Treasury's economist, Vision 2030 and our top university proffesors to sit down and advice the country on the way forward.

Mpigs are least qualified here.

[Simanova]

What GoK can do is ensure there is real competition in the market. Banks must be subjected to Stress Tests so that each one of them can absorb any number of transferring clients. I know they have resisted Opus Dei but he needs support.

I am very ambivalent about the proposed law. CBK has the power to influence interest rates.

Indeed a complex issues that could have mess the economy. I rather the president listened to economic experts than Mps here. This is where you need CBK, Treasury's economist, Vision 2030 and our top university proffesors to sit down and advice the country on the way forward.

Mpigs are least qualified here.

[patel]

Simanova you were right Uhuru is owned by the banks. The same banks that are run like Extortion cartels. The parliament are elected officials representing the interest of their electorate.  People want lower interest rates. Parliament can still pass this bill defying uhuru for once.
Cord should take this debate to the people with majority of kenyans on one side vs uhuru bank owner and banks on the other side.

[Georgesoros]

I absolutely agree with you
MPIGS should pass laws that influence competition rather than running for an easy fix.
Yes banks can be forced to lower rates, what is they cap lending?

What GoK can do is ensure there is real competition in the market. Banks must be subjected to Stress Tests so that each one of them can absorb any number of transferring clients. I know they have resisted Opus Dei but he needs support.

I am very ambivalent about the proposed law. CBK has the power to influence interest rates.

Indeed a complex issues that could have mess the economy. I rather the president listened to economic experts than Mps here. This is where you need CBK, Treasury's economist, Vision 2030 and our top university proffesors to sit down and advice the country on the way forward.

Mpigs are least qualified here.

[veritas]

From Jukwaa: http://jukwaa.proboards.com/thread/9491/bankers-kenya-declare-war?page=2

[patel]

Thanks veritas for the link, good read .
All these people talking about market forces and market competition talk like they live in Mars totally oblivious of kenya rigged bandit economy. What's wrong with the bank competing on the interest rates below 14.5% ?

[veritas]

Hey Patel  my regards to dear Onyango Oloo.

With my variable mortgage rate in Australia, I haven't seen the interest rate go above 14.5% per year for a 30 year loan. Typically fixed is lower so capping fixed/variable interests at 14.5% for mortgages seem reasonable to me.

Capping in Kenya would hurt microfinancing loans. Personal loans attract a higher interest. Also industrial loans where banks can charge up to 30% interest per year interest because big loans can pay it back anyway in a couple years.

I haven't seen the bill so I'm not sure if these particulars are addressed and this capping only applies to mortgages.

[veritas]

My guess is like Uganda: http://www.bloomberg.com/news/articles/2015-07-13/ugandan-central-bank-raises-key-rate-to-14-5-as-currency-slumps

Kenya is dealing with serious inflations, debt, fake money distribution, laundering, and this capping prevents banks from charging more to plug those deficits. Banks mind you have very serious security breaches to deal with right now. I hear they lose billions to hackers each week.

The people (IMF types) lobbying for this are private sectors and loan sharks who want Kenyans to spend more, borrow more and spiral more into debt and hinder banks from charging more interest and hinder spending power. Since Uhuruto from the start have stolen and mismanaged funds.. this predicament was inevitable under a selfish Kikuyu presidency. Once again Kenya remains the global poster child for theft.

[hk]

1. Banks would rather lend to government, corporates and high net individuals than common Mwananchi who can default easily.

2. Unlike other jurisdictions where interest rate are low,  Kenya does not have synchronized data of an individual. Those countries when you borrow in banks,  they banks knows which properties they own, where they are etc.

3. The premium collateral in Kenya is land.  You know how the registry is.  One parcel with 2 or more genuine titles.

4. Banks have shareholders who expect returns.  You reduce the profits and the shares dips.  Banks account for 40% market capitalization at the NSE.  If they dip the market crumbles

There are alot of things that need to be sorted out first before capping those rates.

The key is lowering the CBR what the central bank lends to banks . So the key is lowering CBR by lowering the cost of government borrowing. That solution is in freeing up the government debt market to regular citizen by unleashing the M-akiba concept. The other alternative is to borrow cheaply in foreign markets but that needs our currency to be seriously stable. Its very unfortunate that our debt market especially the secondary market is much smaller than equity market. Which means only a dearth of corporate bonds are being issued.
The banks also needs to classify borrowers not by collateral but how likely they can pay their loans. Basically lending on cash flow bases. Arbitrary fixing rates isn't a solution.

[Higgins the genius]

Uhuru has signed it

[Georgesoros]

You are absolutely right. I remember the same scenario in USA some time back. Eventually, congress let the market forces dictate. Government intervention, altough well meaning can have disastrous effect. The jury will be out in Kenya in about 5-10yrs.

1. Banks would rather lend to government, corporates and high net individuals than common Mwananchi who can default easily.

2. Unlike other jurisdictions where interest rate are low,  Kenya does not have synchronized data of an individual. Those countries when you borrow in banks,  they banks knows which properties they own, where they are etc.

3. The premium collateral in Kenya is land.  You know how the registry is.  One parcel with 2 or more genuine titles.

4. Banks have shareholders who expect returns.  You reduce the profits and the shares dips.  Banks account for 40% market capitalization at the NSE.  If they dip the market crumbles

There are alot of things that need to be sorted out first before capping those rates.

The key is lowering the CBR what the central bank lends to banks . So the key is lowering CBR by lowering the cost of government borrowing. That solution is in freeing up the government debt market to regular citizen by unleashing the M-akiba concept. The other alternative is to borrow cheaply in foreign markets but that needs our currency to be seriously stable. Its very unfortunate that our debt market especially the secondary market is much smaller than equity market. Which means only a dearth of corporate bonds are being issued.
The banks also needs to classify borrowers not by collateral but how likely they can pay their loans. Basically lending on cash flow bases. Arbitrary fixing rates isn't a solution.

[hk]

This actually will only affect bank loans. But areas where there's tremendous growth is in mobile lending like Mshwari and KCB-Mpesa those aren't being affected. I foresee a situation where bulk of loans being extend will be in small short term loans for the many kenyans and only the well heeled accessing loans that are interest capped. Uhuru couldnt ignore the political pressure to sign the bill. 

[RV Pundit]

Good call. Let try it.
http://www.nation.co.ke/news/Uhuru-assents-to-Bill-capping-Bank-interest-rates/1056-3356220-vevmxn/index.html

[RV Pundit]

Why shouldn't the same cap apply for the same loan. I think banks are doing the mobile loan like shylock and CBK need to move it. They can put in transaction fee but the same law applies.

This actually will only affect bank loans. But areas where there's tremendous growth is in mobile lending like Mshwari and KCB-Mpesa those aren't being affected. I foresee a situation where bulk of loans being extend will be in small short term loans for the many kenyans and only the well heeled accessing loans that are interest capped. Uhuru couldnt ignore the political pressure to sign the bill. 

[hk]

Why shouldn't the same cap apply for the same loan. I think banks are doing the mobile loan like shylock and CBK need to move it. They can put in transaction fee but the same law applies.

This actually will only affect bank loans. But areas where there's tremendous growth is in mobile lending like Mshwari and KCB-Mpesa those aren't being affected. I foresee a situation where bulk of loans being extend will be in small short term loans for the many kenyans and only the well heeled accessing loans that are interest capped. Uhuru couldnt ignore the political pressure to sign the bill. 

I could be wrong but I think the bill specified bank loans. The classification for mobile loans is different and the loans are no more than 6 months.

[Omollo]

Now that Uhuru Kenyatta has disappointed me and signed the bill, I will dedicate some time to counting how many banks flag out to places where they can fleece citizens at will.

[Georgesoros]

investors are pulling money fro bank stocks after Kenyatta signed the bill. Didn't force that, right?
Careful what you wish for. Yes the rates will be capped, but then there is no money. Kenya will go thru serious challenges...

[RV Pundit]

You enjoy scaremongering. Give this some time. Maybe 6-1yr and we will know if this is the way to go or we need to reverse. Certainly many kenyans are very happy about this move. Uhuru has shown he is not beholden to any special interest. That is what makes him special.

investors are pulling money fro bank stocks after Kenyatta signed the bill. Didn't force that, right?
Careful what you wish for. Yes the rates will be capped, but then there is no money. Kenya will go thru serious challenges...