By Cornelius Kigera Friday, September 16, 2016

The Banking (Amendment) Act, 2016 (the Act) was gazetted as an Act of Parliament on 31 August 2016 and comes into operation today, Wednesday, 14 September 2016. If the Act is contravened the Chief Executive Officer of a bank could face imprisonment or a fine. Other than this amendment, the provisions have been enacted as provided in the Bill.
The Central Bank of Kenya (CBK) has issued a circular (Banking Circular No. 4 of 2016) that provides the following:

  • Ceiling on interest rates and floor on deposit rate.
  • Disclosure of charges and terms and conditions of loans

Ceiling on interest rates and floor on deposit rate.

  • The Act provides that banks shall not charge more than “four per cent (4%) the base rate set and published by the Central Bank of Kenya”.
  • The CBK has clarified that the applicable reference rate for purposes of this section of the Act will be the Central Bank of Kenya Rate (the CBR), and that the maximum interest chargeable shall be four percentage points above the CBR. The CBR is currently at 10.5%, bringing the maximum interest chargeable on a credit facility to 14.5%.
  • The CBR is published by the CBK on its website pursuant to Section 36(4) of the Central Bank of Kenya Act, Chapter 491. The level of the CBR is reviewed and announced by the CBK’s Monetary Policy Committee (MPC) at least every two months.
  • The CBK has also clarified that the interest rates prescribed in the Act will apply on an annual basis.
  • The CBK has provided forms for disclosure of interest rates levied by banks on an aggregate monthly basis with the first return in respect of the month of September 2016 due on or before 7 October 2016.

Disclosure of charges and terms and conditions of loans

  • The CBK has directed that all banks should submit to it copies of their policies that will ensure full disclosure of all charges and terms of loans.
  • It is expected that the CBK will in due course provide guidelines on the depth and breadth of the disclosures required.