When President Uhuru Kenyatta signed the Banking (Amendment) Bill 2015, banks were caught flatfooted and the institutions are smarting from the move.

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The Bill was passed in parliament on July 28, 2016 to regulate interest rates applicable to bank loans and deposits. It is capping interest rates that banks can charge on loans and must pay on deposits.

President Kenyatta said he consulted widely after receiving the Bill and found out that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks.

He said he shared the concerns that were centred around the cost of credit and the applicable interest rates on their hard–earned deposits.

This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels as in the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of these caps.

In those instances, banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.

And so, the banks that have been the most expensive on loans will be the biggest casualties after this law is implemented.

Data published by the Central Bank in February this year showed that the weighted lending rate in the 43 banks rose to 18.3 per cent in December from 16.8 per cent in September and 16.1 per cent in June last year.

The rate is based on the average charges on personal, business and corporate loans.

This weighting, however, excluded administrative, processing, valuation, legal and commitment fees which means the actual interest rates were higher.

The banks that will see their profits reduced by a huge margin include Sidian Bank (formerly K-Rep Bank) which will have to reduce from 25.7% to the required 14.5.

Others that will have to reduce the rates almost by double include Consolidated Bank 25.4%, Credit Bank 24.5%, Middle East Bank 24.2%, UBA 24.1%, GT 23.7%, Stanchart 22.2%, CFC Stanbic 22%, CBA and Equity at 21.3%.

The cheapest banks at the time were Habib at 8.4%, Guardian 14.1%, National Bank 14.7%, Housing Finance 14.8%, Family Bank 14.8%, Diamond Trust Bank 15.2%, KCB and Co-Op 16.6%, Ecobank 16.7% and Gulf African at 16.9%.