Rate Capping

Rate Capping

A former policy of the British government that restricted the taxes that local councils were able to levy. Rate capping began with about 18 councils deemed to be overspending, and was later extended to other councils. Rate capping led to the rate capping rebellion over the 1985-1986 local budgets, in which some local governments refused to abide by the restrictions (though most eventually backed down). Rate capping was formally abandoned in the late 1990s.
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The industry lobby, Kenya Bankers Association (KBA), in an interview Thursday however disputed that the launch of the new generation bank notes had handed the lenders cheap cash deposits."The low lending to businesses and individuals has not been happening due to low liquidity, it is about pricing the risks of the borrowers after the interest rate capping.
'The removal of deposit rates cap has lessened the strain on cost of funds for banks but interest rate capping and the resultant inability to effectively price risk continues to constrain supply of credit,' the report stated.
Challenging Mackay at Holyrood's finance committee, Harvie added: "At least when Thatcher did rate capping she had the decency to do it on a statutory basis, not by bullying." Mackay rejected Harvie's Thatcher comparison as "inaccurate".
It was in early March this year that the initial signs of the impact of the interest rate capping began to be seen and felt as decreased lending became evident.
Commercial banks will not adjust the interest rates on loans already taken after the law capping interest rates is repealed.In the biggest concession yet to Parliament in a bid to scrap the interest rate capping law, lenders, through the Kenya Bankers Association (KBA), the sector lobby group, offered not to increase interest rates on current loans, as has been the practice in the past.
"In order to enhance access to credit and minimize the adverse impact of the interest rate capping on credit growth while strengthening financial access and monetary policy effectiveness, I propose to amend the Banking (Amendment) Act, 2016 by repealing section 33B of the said Act,' Rotich said in his budget speech.
Risk-averse commercial banks suspended unsecured lending to small businesses and homes since the onset of the rate caps in September 2016, raising their stock of cash for investment in government securities.The High Court in March declared unconstitutional section 33B of the Banking Act, which introduced rate capping but suspended the enforcement of the ruling for 12 months to give Parliament time to amend the law.
About a year and a half after the interest rate capping law came into effect pricing loans at four per cent above the Central Bank Rate, loan accounts have reduced by 1.2 million with credit to the private sector declining by Sh135 billion in 2017 alone.
"Although the responsibility of the Central Bank of Kenya in setting and publishing the Central Bank Rate under Section 36 of the Central Bank Act is undoubtedly a function of formulating monetary policy, the petitioner (Mr Boniface Oduor) has not demonstrated to the satisfaction of the court that the provisions of Section 33B, relating to interest rate capping, falls within the purview of monetary policy," the court said in its press summary.The statement went on: " For that reason, the court cannot fault the National Assembly in legislating a provision on interest rate ceiling.
In its third report released on Friday on the impact of interest rate capping introduced by Parliament in the third quarter of 2016, the association said the law has instead stifled access to capital with the number of loan accounts reducing by 1,229,242 between 2016 and 2017.
figure By DAVID MWERE class="MsoNormalNational Treasury Cabinet Secretary Henry Rotich has announced that the government is planning to "revisit" the interest rate capping law in a move that he argues will support economic growth by reviving lending to the private sector.
'As an Institute, we continue to support interest rate capping as the benefits outweigh the hiccups faced so far,' he said.