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Shilling Remains Stable Despite Protests, Why Banks Need Treasury Approval to Adjust Rates

The Kenyan Wall Street

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发布日期: 2024年7月1日

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Shilling Stable Despite Protests

Last week, the shilling weakened 0.8% against the US Dollar closing the week at 129.5 from 128.6 last week, shrinking the year-to-date performance to 17.2%.

Kenya’s usable forex reserves dropped slightly to US$ 7,800 million, enough to cover 4.1 months of import cover from US$ 8,321 million the previous week.
The decrease comes a week after settlement of the $560 million of the 2014 Eurobond using the $1.2 billion World Bank loan to Kenya.
In international markets, yields on Kenya’s Eurobond increased by 24 basis points reflecting jittery investor sentiments amid the anti-finance bill protests during the week.

“The successful partial refinancing of the Kenya 2024 Eurobond delivered a decisive boost of confidence to investors, whereas the complementary set of liberal reforms to the foreign exchange interbank market helped the Kenya shilling achieve greater price discovery,” Ronny Chokaa, Senior research analyst at AIB-AXYS AFRICA told?The Kenyan Wall Street recently.

Despite protests over the past two weeks and more planned, investors are cautious but not rattled, especially after the government conceded to protests and rescinded the Finance Bill 2024. Treasury bills have been undersubscribed for the past three weeks, which is partially driven by the caution of local and foreign investors, and the government’s efforts to avoid expensive bids.

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Banks Need Treasury Approval to Adjust Interest Rates, Supreme Court Says

In a landmark ruling with far reaching consequences for banks and other lending institutions, the Supreme Court has affirmed an earlier decision that a bank should seek approval from Treasury to raise interest rates.

The Court was ruling in an appeal in a long-running civil dispute between Stanbic Bank and its former client – Santowels Ltd.
Stanbic was ordered to refund KSh 10 million to Santowels Ltd. after it was established that they had charged a higher interest rate than the one capped decades ago.?
Stanbic Bank then filed an application to the Supreme Court seeking interpretations of Sections 44 and 52 of the Banking Act.?

Banks now need to seek approval from the Treasury Cabinet Secretary to raise interest rates, as well as other banking charges. Even in cases of mutual contracts between banks and individual customers, Section 52 of the Banking Act restrains financial institutions from charging high interest rates.?

The verdict will have implications in the banking sector as it limits the freedom of financial institutions to set risk based interest rates based on contractual agreements with customers and assessments of creditworthiness, as well as modifications to the base lending rate by the Central Bank. The approval being made by the Treasury CS also introduces the possibility of political interference, especially in situations where Treasury and CBK may not be aligned on monetary policy.