(Bloomberg) -- Kenya plans to repeal a law that caps commercial interest rates, after it crimped lending by banks in East Africa’s biggest economy, Treasury Secretary Henry Rotich said.
The proposal to repeal section 33B of the Banking Amendment Act will be welcomed by Kenyan banks that have complained the 400 basis-point ceiling on the cost of loans nullified their ability to price risk. The measure, introduced in August 2016, exacerbated a slowdown in credit growth to the private sector, which was 2.8 percent in April, compared with 13.5 percent two years ago.
The Banking Amendment Act that placed the ceiling on rates resulted in financial access and economic growth being “adversely affected,” Rotich said in his annual budget speech in the capital, Nairobi, on Thursday. “In order to enhance credit and minimize the adverse impact of the interest capping on credit while strengthening financial access and monetary policy effectiveness, I propose to amend the Banking Amendment Act 2016 by repealing section 33B.”
The legislation has complicated monetary-policy makers’ drive to boost lending and support growth. The cap was introduced to fulfill an election pledge by President Uhuru Kenyatta to improve lending terms when he campaigned for his first term in office.
Kenyatta, who was elected for a second term in October, has conceded that the caps failed to increase lending and his government promised to review the law or remove it altogether.
(Updates with comment by Rotich in third paragraph.)
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