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Legislators want government to regulate borrowing rates

12 September 2013, 09:44

Abuja - Lawmakers are advocating for a new law that will empower the government to regulate commercial bank interest rates.

Lawmakers raised concern that the cost of borrowing was rising faster than the returns on deposits, a move that could hurt the economy.

Currently, local banks charge an average interest rate of 20 percent but pay about four percent for customer deposits.

This makes the country have a spread of 16 percent, which is among Africa's widest.

Until recently, ceilings on deposit rates offered by financial institutions were commonplace but with the extensive deregulation of financial markets in the country in the early 1980s, many controls enforced on banks were eliminated.

This was informed by the fact that the limits would check on stiff competition in the banking sector.

Nonetheless, analysts argued instead of the government regulating the commercial banking sector, it should instead licence more banks.

The East African nation has 44 banks. 31 of these are locally owned while the remaining ones are foreign. The sector’s profit before tax increased from $874.2 million in 2010 to $105.3 million in 2011 on the back of increased borrowings in the market.

"The resulting competition would automatically bring down the lending rates. More importantly, the government ought to publish each bank's interest rates regularly. This will make the market penalise the high rates," he said.

Meanwhile, the high borrowing rates have seen thousands of Kenyans opt for a relatively cheaper Savings and Credit Societies where they pay a 10 percent interest per year on the amount borrowed.

- CAJ News


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