NAIROBI, Oct. 19 (Xinhua) -- Kenya's commercial banks on Thursday called for a repeal of the year-old law capping interest rates because of the negative effect it has had on the economy.
The bank's umbrella body, Kenya Bankers Association (KBA), said findings show that loan disbursement has been on a declining trend regardless of the fact that applications have been on the upward trajectory since the coming into effect of the law in September 2016.
KBA CEO Habil Olaka said the law has largely failed to achieve the desired objectives after evidence of market outcomes and bank data confirmed the adverse consequences of the law one year into its implementation.
"Survey covering 77 percent of the banking industry revealed that the law intensified decline in bank credit to the private sector and nearly grinding it to a halt with the most affected being the unsecured personal loans," Olaka told journalists in Nairobi.
The Banking Amendment Act 2016, which was introduced in September 2016, in addition to the ceiling on interest rates, required banks to disclose charges, terms and conditions related to a loan to a borrower before granting the credit.
It requires commercial banks to cap the interest rate applicable on a credit facility to a maximum of 4 percent above the Central Bank of Kenya base rate (CBR) which currently is at 10.0 percent.
The East African nation capped interest rates on bank loans to 14 percent last year following a public outcry over high rates charged by banks that averaged 18 percent, sparking credit squeeze to the private sector.
A number of commercial banks have called on the country's apex bank to review the law, arguing that low cash flow has limited expansion of micro and small businesses and thus slowed new employment.
The survey by KBA says many bank customers have for long time discovered unbearable charges on their loans they were initially not aware of, resulting in their inability to service their loans.
This made Kenya's real interest rate spread to be among the highest in the world after almost 20 years of many unsuccessful attempts to reduce the spread by way of regulation intended to protect the ordinary man.
Since May, Olaka said, loan disbursement has been on a declining trend regardless of the fact that applications have been on the upward trajectory, adding that in June, for instance, out of 3.2 million loan applications made, only about 1.1 million were disbursed.
KBA's Director of Research and Policy, Jared Osoro, said the law promoted adjustments in the banking industry in the form of staff and network rationalization.
"From the surveyed banks, there has been job reduction of 1,933 as the number of management and non-management staff reduced from 28,009 employees as at August 2016 to 26,076 employees by June," Osoro remarked.
"The number of bank branches have also reduced over the period where many financial institutions appearing to be relying more on agents, with the number of agencies rising from 41,686 as at August 2016 to 53,667 outlets as at Jun 2017," the director added.
The bankers' group s the financial sector's leading advocacy organization and the banking industry umbrella body that represents total assets in excess of 370 million dollars.
