NAIROBI – Kenya’s central bank threatened commercial banks with legal action if they submit inaccurate or incomplete data to credit reference bureaus, according to a circular seen by Reuters on Wednesday.
Kenyan banks have come under fire in recent weeks for the high costs they impose on borrowers. Two weeks ago, parliament passed a bill to cap the commercial interest rates banks charge.
Both the central bank and the Kenyan Finance Ministry oppose the bill, an amendment to the country’s banking laws. They argue that caps on lending rates will drive borrowers to informal financial services, increase credit inefficiency and undermine transmission of monetary policy.
Credit reference bureaus are one alternative to legal limits on lending rates. They were established in 2010 to help banks gauge the risks of lending, which in turn should help lower the cost of credit for consumers. So far, though, they have not done much to reduce rates.
In the circular dated Aug. 10, the central bank accused lenders of failing to submit accurate and complete data to the bureaus and failing to advise their customers when they are listed with the bureaus for defaulting.
“Failure to comply with the reporting requirements or any other provision of the CRB regulations will attract enforcement action as specified under the Banking Act,” the central bank said in the circular.
The circular plays to the narrative of banking critics, who say the lenders use high interest rates to drive up their profits at the expense of borrowers.
Lamin Manjang, the chairman of the Kenya Bankers Association, said the organisation would not stand for any member using the credit reference bureaus to harass borrowers.
“It shouldn’t be used a tool to punish any borrower, if any such incident happens it is something that as an association we will take very seriously,” he told reporters before the central bank’s circular was made public.