Commercial banks and mortgage finance companies have up to September 14 to slash interest rates in line with the Banking (Amendment) 2016 Act.
Central Bank of Kenya said in a statement on Thursday any financial institution that charges borrowers more than the interest rates stipulated as per the Act, or gives less interest on customer deposits than the stated rate will be fined Sh1 million.
According to nation.co.ke, the bank's chief executive, added the regulator will be imprisoned for a year.
The directive came even as the Kenya Bankers Association (KBA) members agreed to revise their lending rates for old loans to 14.5 per cent as the Act which came into law last week states.
The new law caps interest rates at four percent above the prevailing Central Bank’s CBR which currently stands t 10.5 per cent.
Elsewhere, banks are supposed to notify their customers on the process and new terms as the sector engages with CBK on the implementation of the new law.
“The voice of Kenyans has come out strongly that banks need to better serve their customers and pass on the benefit of enhanced efficiencies to borrowers and depositors. We appreciate this sentiment and are committed to winning back the trust of the banking public by meeting their expectations,” the association stated as reported by capitalfm.co.ke.
The members also agreed to minimise any unintended negative consequences on the broader economy, such as a reversal of the positive strides made towards financial inclusion through certain groups of people and SMEs being excluded from access to banking services.
“Our member banks will work to enhance their lending practices and customer service standards to ensure that customers are better served and informed about their financial options,” KBA said.
Already, several banks have fully complied with the new law on lending rates.
Initially, banks had indicated that the Act would not affect old loans saying it was unclear whether it will affect loans procured before President Uhuru Kenyatta’s assent.