Regulatory Alerts2016-09-13
Banking Circular No 4 of 2016 - The Banking Amendment Act 2016
On 13th September 2016, CBK published Banking Circular No. 4 outlining the commencement of the Banking (Amendment) Act, 2016 on 14th September. The act sets new provisions for interest rates and disclosure requirements. The Central Bank Rate (CBR) is now the base rate, which when set at four percentage points above, will determine the maximum chargeable credit facility interest rate. Interest rates are to be reported monthly, with the first returns due by 7th October for end-September data. Loan disclosure policies must be submitted to CBK by 30th September, ensuring full transparency for borrowers regarding loan terms and charges. Further reforms aimed at improving credit market operations will also be implemented by the Central Bank, which aims to improve monetary policy transmission.
Governor Haile Selassie Avenue P.O.Box 60000 - 00200, Nairobi, Kenya.
Telephone: 2861003/24 Fax: 2716556 September 13, 2016 BANKING CIRCULAR NO. 4 OF 2016 TO ALL CHIEF EXECUTIVES OF COMMERCIAL BANKS AND MORTGAGE FINANCE COMPANIES THE BANKING (AMENDMENT) ACT, 2016 Further to the notification from the Central Bank of Kenya (CBK), dated August 31, 2016, the Banking (Amendment) Act, 2016, will commence on September 14, 2016. With this in mind, CBK draws your attention to the following: 1. For purposes of section 33B of this Act, the base rate is the Central Bank Rate (CBR).
This is in line with Section 36(4) of the Central Bank of Kenya Act which requires that; "The Bank shall publish the lowest rate of interest it charges on loans to banks and microfinance banks, and that rate shall be known as the Central Bank Rate".
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For purposes of section 33B (1) (a) which sets the maximum interest rate chargeable for a credit facility "at no more than four percent, the base rate set and published by the CBK", the cap will be set at four percentage points above the CBR.
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The interest rates indicated in the Banking (Amendment) Act, 2016, will apply on an annual basis.
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For monitoring purposes, institutions should complete and return the attached documents to CBK within 5 working days after the end of the month. Accordingly, the first returns for end September 2016, should be submitted to CBK by October 7, 2016.
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Section 31A on the disclosure on loans states that "A bank or financial institution shall, before granting a loan to a borrower disclose all the charges and terms relating to the loan." Accordingly, institutions should submit to the CBK by September 30, 2016, copies of their policies that will ensure full disclosure of all charges and terms for loans to borrowers.
As you are aware, further reforms are needed to improve the operations of the credit market. In this regard, the CBK will put in place additional measures to enhance cost of credit, disclosures, strengthen the credit information sharing mechanism and improve interbank liquidity management. These reforms will also enhance the transmission of monetary policy.
Dr. Patrick Njoroge