By Stanley Wabomba
Banks are facing a major plunge in their profits following a decision to cap their interest rates as prescribed in the new banking act.
Banks have been forced to reduce their interest rates which generate close to sixty percent of their profit margins.
Critics have for a long time blasted commercial banks in Kenya for posting huge profits at the expense of poor borrowers.
Last year, the banking sector profit before tax stood 134 billion shillings from 141 billion shillings recorded the previous year, registering a 5.03 percent drop due to an increase in non-performing loans.
The growth in toxic debts has been blamed on costly loans after the shilling weakened last year forcing banks to increase interest rates on loans.
However, days when banks used to adjust the cost of their credit appears doubtful following the enactment of the Banking Amendment Act 2015 that has put a ceiling on the maximum cost of loans.
In Kenya, banks make 62 percent of their profits from interest income, followed by commissions and fees.
KCB chief executive Joshua Oigara says banks will now be forced to innovate in order to remain profitable in the face of low interest income regime.
The bank that has become the sixth bank in the last one week to lower the rate charged on loans has denied that it will embark on a downsizing exercise.
Oigara says starting today all new and old loans will attract a maximum of 14.5 percent urging all borrowers to get in touch with their branches in order to benefit from the new rates.