Stanbic Bank Kenya Sees ‘Painful’ Rate Caps Curbing Income

Updated on

Stanbic Bank Kenya Ltd., the lender controlled by Africa’s largest bank by assets, said interest-rate caps imposed by the government are a “painful penalty” that will curb the income the lender earns from loans.

“There will be a financial impact with regard to net interest income,” Chief Executive Officer Philip Odera told reporters Wednesday in the capital, Nairobi. “That is part of the penalty that comes with not being aligned with expectations. It’s a painful penalty.”

Kenyan President Uhuru Kenyatta last week signed into law legislation to peg credit costs at 400 basis points above the benchmark central bank rate. The law also compels financial institutions to pay interest of at least 70 percent of the so-called CBR on deposits.

In approving the law, Kenyatta sided with Kenyans frustrated by the cost of credit and low rates on savings, while criticizing the profitability of the nation’s banks that exceed levels in South Africa and Nigeria, the continent’s largest economies. Kenyan banks extended loans at a weighted average of 18 percent in June, according to the latest central bank data.

Stanbic cut its commercial loan rates to 14.5 percent after the announcement, matching reductions by lenders including KCB Group, the country’s biggest bank by assets, Co-Operative Bank of Kenya Ltd. and Barclays Bank of Kenya Ltd. Lenders are awaiting clarification from the central bank whether they should base their loan rates on the Central Bank Rate, currently at 10.5 percent, or the Kenya Banks’ Reference Rate, which is at 8.9 percent, Odera said.

“For the time being we are basing it on the base rate,” he said.

Stanbic, owned by Johannesburg-based Standard Bank Group Ltd., this month posted a 22 percent increase in first-half profit to 2.4 billion shillings ($24 million) as net interest income, the amount of money it earned from interest charges on loans, surged 25 percent.