Diamond Trust Bank worst hit by capping law as bank’s stock plummets at NSE

Stocks for the banking sector fell on Thursday at the Nairobi Securities Exchange (NSE) a day after President Uhuru Kenyatta signed a new law to cap interest rates at 4 per cent above the Central Bank’s (CBK’s) benchmark rate.

Diamond Trust Bank (DTB) was the worst hit as its shares fell by 10.69 per cent to trade at Sh142 down from Sh159 traded a day before after the Head of State signed the Bill into law.

I&M Bank further registered a sink though slightly lower than DTB where its shares fell by 9.81 per cent to trade at Sh96.50 from compared to Sh107 traded a day earlier.

Other lending institutions that were majorly hit by the law include Co-operative Bank, whose shares went down by 9.81 per cent to settle at Sh11.95 while Equity Group shares declined by 9.03 per cent to trade at Sh32.75.

Barclays Bank of Kenya dipped 8.76 per cent to Sh8.85 and moved 159,000 shares while KCB Group declined by 8.39 per cent to settle at Sh30 on a volume of 135,000 shares.

Kenya Bankers Association (KBA) Chief Executive Habil Olaka said that any amendment to the law regarding the financial sector has massive effects on the market.

“This is a market reaction to the news of the President assenting to the interest rates Bill, but the market will settle down. This does not determine the way forward,” he said.

Olaka explained that a majority of borrowers are unlikely to benefit from the much-hyped law that allows access to cheaper loans.

He said credit rationing is expected to hit the banking sector once the new law takes effect.

“High risk borrowers will now face more obstacles in getting loans. If your risk is higher than the 4 per cent cap that is now in the law, it will be hard for a bank to give you a loan. Most small and micro finance companies fall in this category and they are the backbone of the economy,” he observed.

However, Olaka confirmed that the banking industry has inked a Memorandum of Understanding (MoU) with the Central Bank to ensure that Small and Medium-sized Enterprises (SME’s) have access to credit.

“Among pledges we made in the MoU was to support SME’s through the ‘Inuka Enterprise SME Development Programme,’ a programme that will see banks commit Sh 30 billion worth of capital extended to SME’s at preferential rates. A third of the amount would be allocated specifically to women and youth-owned businesses,” he said.

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