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{
    "id": 472040,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/472040/?format=api",
    "text_counter": 15,
    "type": "speech",
    "speaker_name": "Sen. Billow",
    "speaker_title": "",
    "speaker": {
        "id": 260,
        "legal_name": "Billow Adan Kerrow",
        "slug": "billow-kerrow"
    },
    "content": "The statement sought was on three areas; one, the Senator wanted to know the relationship between the high interest rates charged by banks and the very high profit after tax being made by the banks in this country. Secondly, he wanted to know the impact of the high interest rates on development and economic growth particularly in the counties. Lastly, he wanted to know the relationship between the profit made by the Central Bank of Kenya (CBK) from lending to banks and the profits made by those banks. Mr. Speaker, Sir, this is very useful because these are some of the topical issues today in the country. The Government liberalized interest rates in 1992 when all the controls on lending and deposit rates were removed. Subsequently, all the interest rates are being determined, since then, by the market forces. The Senator has a copy of the answer which is long. I will be very brief. I will highlight the key areas. On the first question regarding the relationship between the high interest rates charged by the banks and the very high after tax profits made by the banks, over the past 11 years, interest rates on loans and advances in the banking sector constituted only 42 per cent of the total income of those banks. The rest of the income has been from the interest on Government securities and other non-interest income. This clearly shows that interest income on loans and advances does not constitute a significant portion of the bank’s total income. It is also worth noting that despite the consistent increase in lending from Kshs315 billion in 2003 to Kshs1.6 trillion in 2013, the average lending rates have oscillated between 11 per cent and 20 per cent over the last 11 years on average. In fact, were it not for the very high rates in 2011 and 2012 – in 2011, the rate was about 20 per cent on average and in 2012, it was 18 per cent. In 2013, the rate was about 17 per cent. Otherwise, the average rate would have been 14 per cent over the ten year period. Mr. Speaker, Sir, it is important to note that the banking sector financed an average of 83 per cent of their loans during this period from customer deposits. As a result, interest on deposits constitute 40 per cent of the total interest earned by the banks. That is the response to the issue of the high interest rates. What we are saying is that the high interest rates do not necessarily lead to the very high after tax profits. There is a schedule that we have provided, which gives the relationship across all the banks for the last 11 years. This is the relationship between the incomes by the banks and the interest rates. I will not go into that. The Senator has a copy of that schedule. But it is important to note that the high profits after tax has not necessarily been as a result of the very high interest rates. The electronic version of the Senate Hansard Report is for information purposes only. A certified version of this Report can be obtained from the Hansard Editor, Senate."
}