Hahaha thats what will be done

What are the advantages of flat rates vis a vis reducing balance for a bank/lender?

So if the bankers decide to charge loans at 14.5% flat rate then this new law is minced meat? aka dead on arrival!!!!

[quote=Wakanyugi][quote=KNM]This is how I see it playing out, should this law stand.
For one, equilibrium will be reached. So good news for the pro-rate cap crowd. Well sort of...

1. Freeze/slow down in lending: Already began btw. By removing their ability to adequately price the risk into loans(coz thats whats happened!) then better safe than sorry. The leaked memo yesterday was just an example. All will follow suit esp with the unsecured loans.

I don't see banks tightening the noose already around their necks. Banks primary business is to 'buy' and 'sell' money. So they stop doing that and do what? Sell mandazi?

True. But why do you assume that it will be you they sell to? The biggest cheering squad is also the one that will be locked out. Mark you, the law is on rate only. So for existing loans, the duration may be extended outrageously. So if you're cheering your reduced loan...ole wako. Government, external markets are all avenues for growth. Less risky even.


OK, I'll pretend I understand your logic here and say, Good point.

2. Refusal of deposits
Now plenty of people are confused by this. Nobody is saying a bouncer is at the door stopping you from depositing, it means less welcoming(free). Deposits believe it or not cost banks BIG time. Think of costs at point of deposit(branches, agents/cashiers/personnel, platforms), security of the deposits physical(guards, transit vans, safes) or digital(cybersecurity personnel), accounting (systems, personnel). Beforehand deposits paid for their own costs but now someone has to pay. I can guarantee banks are, as we speak, crunching the numbers. Transaction costs will rise(before you jump with the CS approval line, I'm talking about existing fees), ATM charges rising 100%--from around KES 30 to 60+ etc.Notice how personnel featured severally in the deposit-taking costs? Yep, lay-offs. Like I said someone has to pay.

I know a few SACCO's that are salivating at this prospect. Banks are not the only deposit taking institutions around. As for bank layoffs, they have been doing that already.

Are you saying SACCOs will replace banks? And even as they "eat" banks business they swell until they become...? Banks.

Have you looked at the latest list of registered SACCO's, or listened to them advertise on Vernacular radio and TV? If Banks never worried before, they should now.

3. Fall of small banks, rise of big(ger) banks.
Big banks will be able to weather the initial credit freeze. Deep pockets mean easy to diversify. Small banks not so much. And its a catch 22 situation for them. Deny credit and not make money. Lend at low rates and be forced to play with volumes game to break even, and with it risk of default shoots. People will see these banks again going under with customer deposits, coz of defaults. So yes M&As will happen but it will be big swallowing small.

Consolidation in the Bank sector, ala Nigeria, is long overdue and if the bill accelerates it, well and good. I never bought the Governors argument about niche banking. It takes size and capital to take niche ideas to scale, which is what ultimately benefits the economy.

So above you welcome competition from SACCOs but here oligopolies are good. Really?


This is not about oligopoly. It is about safety through size, the capacity to innovate and scale and to compete outside our borders. We have too many banks for a small economy like Kenya. In any case, one of the worst kept secrets is that Banks in Kenya are a cartel. How else do you think they managed to effect State capture for so long?

4. Fall of production
Forget the car/smartphone buying consumers for a sec. Businesses esp SMEs being locked out from credit access to fuel their expansion/survival. With that, loss of productivity, worsened by being in an election year. Businesses contract and at best, hiring freeze. More likely, further lay offs.

There is little worse that can happen to SME's than is already happening to them now. Think of it: what kind of business could you do that will give you enough returns to service a loan at 25%? As for the fall in consumption lending, I say it can't come soon enough.

SMEs were being weighed down, yes. But now they will be all out starved. In growth, slow>none>negative.


So what is new? You starve me to death (the situation now) or choke me till I die (the new threat). Same difference.

What if I take new loan from another bank at 14% and pay off the old loan taken at 21%?

Early termination fee is usually small.

Ama nafikiria vitu zangu?

Most banks will convert savings & fixed deposits to current accounts to avoid paying heavy interest expenses...its easy to convert Kamau's fixed deposit into a current account than for Britam...what you will see going forward is banks coming up with stupid products just to move your account