Banks will no longer enjoy discretion to raise interest on loans, the Supreme Court has ruled, effectively taming the appetite of lenders who raise the cost of credit every time the Central Bank of Kenya reviews is Base Lending Rate.
In a ruling that will come as a relief for borrowers, who have had to endure arbitrary increases in loan rates, the Supreme Court said no bank can raise rates without the approval of the National Treasury.
The Nairobi Business Monthly had in its March edition questioned why banks increase loan rates on old loans every time CBK reviews its base rate.
And Friday five Supreme Court judges ruled that banks have no power or discretion to increase rates on existing loans “willy nilly”.
They were ruling in a case in which Santawels Ltd had sued Stanbic Bank Kenya Ltd for adversely affecting its business through adjustments of its rates. They agreed with an earlier ruling by the Court of Appeal, which Stanbic had challenged.
“Once interest is agreed upon, and an agreement is entered into, which in effect gives a lender the discretion to vary the interest, it is our view that the discretion cannot be exercised willy nilly to charge exorbitant interest,” the court said.
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