Kenya Bank Stocks Gain as Lawmakers Back Removing Rate Caps

Adelaide Changole and David Herbling

(Bloomberg) -- Kenyan banking shares soared as lawmakers backed President Uhuru Kenyatta’s bid to remove a cap on interest rates that’s cut credit to businesses in East Africa’s biggest economy.

The removal of the three-year-old law, which set a ceiling on commercial rates at four percentage points above the country’s benchmark rate, will enable lenders to better price loans and be less selective about lending. It will also appease the central bank, which has complained that the caps hinder monetary-policy implementation.

Parliament’s finance committee recommended that the National Assembly support Kenyatta’s rejection of a proposed law to retain the limit, according to a report they submitted on Tuesday.

Banking shares including Equity Group Holdings Plc led gains on the Nairobi stock exchange on Wednesday, with the nation’s biggest lender by market value jumping as much as 8.6% to the highest level since Aug. 5. KCB Group Ltd. rose 8.8% to its highest in 14 months.

The removal of the caps “should result in margin expansion and acceleration of loan growth,” said Ronak Gadhia, director of Sub-Saharan African banks research at EFG Hermes Frontier. “The uptick in credit, especially to SMEs, should also result in an uptick in economic activity, which should result in stronger gross domestic product growth as well as potentially higher tax revenues.”

(Adds chart on bank stocks’ gains, updates KCB move)

--With assistance from Eric Ombok.

To contact the reporters on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net;David Herbling in Nairobi at dherbling@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Paul Richardson, John Viljoen

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