NSSF’s Byarugaba: Capping Interest Rates ‘Dangerous’

NSSF MD Richard Byarugaba

National Social Security Fund (NSSF) Managing Director Richard Byarugaba has weighed in on the debate on capping commercial bank interest rates, cialis 40mg saying such a move would be “dangerous” to the economy.

The Kenyan President Uhuru Kenyatta recently signed into law a Bill capping bank interest rates at 4 per cent above the Central Bank Benchmark Rate.

The law intends to regulate interest rates that are applicable to banks’ loans and deposits, adiposity capping the interest rates that banks can charge on loans and must pay on deposits.

Kenyatta observed that his decision was premised on Kenyans’ disappointment and frustration with the lack of sensitivity by the financial sector, medicine particularly banks in regard to the cost of credit and the applicable interest rates on their hard–earned deposits.

The Kenyan leader’s action caused jitters in the Uganda financial sector, with the public urging policy makers to emulate Kenyatta.

While the Central Bank reduced its lending rate to 14 Percent in August 2016, commercial banks’ interest rates averaged 23 percent.

The high interest rates have slowed lending, pushing many companies out of business with others seeking a government bailout.

But NSSF’s Byarugaba believes, “it is dangerous to cap interest rates.”

He said capping interest rates will “remove credit from people who deserve it to those who have it.”

Byarugaba further warned that banks which are profit-oriented could be compelled to “look for other ways of getting money through bank charges.”


Addressing a media dialogue at his office in Kampala this week, Byarugaba added: “It’s not the best way of doing it. Government should not bow to pressure.”

Several businessmen have lost property worth billions of shillings due to high interest on their loans.

But Byarugaba observed that interest rates are determined by forces of demand and supply.

He explained that commercial banks act as sources of short term, medium and long term financing hence an increase of demand for money that encourages high interest rates.

A seasoned banker, Byarugaba said freeing pension scheme and creating a “robust development bank” would increase sources of funding hence reducing demand for money from commercial banks.

Bankers say capping interest rates could lead to credit becoming unavailable to some consumers and give birth to unregulated informal and exploitative lending mechanisms.

During a recent roundtable meeting at Kampala Serena Hotel, bankers warned that an interest rate capping policy would lead to credit rationing which affects SMEs, discourages innovations and supply of funds as well as pose risks to nonperforming loans.

“Capping will expose individuals to non-financial players like illegal money lenders whose stringent terms are risky. We are also likely to witness a reduction of confidence in the market among investors who have for long been accustomed to a liberalized market,” an executive of a leading bank commented.


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