On Wednesday’s trading session at the Nairobi Securities Exchange, banking sector stocks continued to soar following a move by members of the finance committee in Parliament to support of the President’s recommendation to do away with the interest rate cap. The committee passed the motion on Tuesday in a meeting.
At the close of Trading, market turnover rose to Ksh 1.7 Billion compared to Monday’s trading session of Ksh 412 Million while the number of shares traded was Ksh 44.2 Million yesterday 12.9M posted yesterday. The banking sector transactions accounted for a huge chunk of the trades.
Part of the recommendation includes an amendment of the Banking Act to remove the restrictive lending rate cap law. The parliamentarians also stated that the existing loans should not be affected by the repeal.
“Notwithstanding the repeal of section 33B, any agreement or arrangement to borrow or lend which was made or entered into pursuant to the provisions of section 33B (now repealed), shall continue to be in force on such terms including interest rates, and for the duration specified in the agreement or arrangement,” read the new sub-section of the Banking Act.
Parliamentarians passed the interest rate cap law in September 2016. The law has been blamed for the decline in credit to the private sector. After the rate cap regulation came into effect, banks reduced their lending to small and medium-sized enterprises and increased lending to the government.
As a result, most businesses struggled to get funding and therefore scaled down their operations or shut down. The rally in bank stocks over the last few days shows that investors are optimistic about the repeal of the rate cap law.
