The Supreme Court of Kenya in Stanbic Bank Kenya Limited Vs. Santowels Limited (Petition Number. E005 of 2023), ruled that banks/financial institutions require approval from the Cabinet Secretary of Finance before increasing interest rates on loans and facilities.

The main issue was whether banks/financial institutions require the Cabinet Secretary’s approval before increasing interest rates or if it is solely up to contractual freedom. This case focused on sections 44 and 52 of the Banking Act, Cap 488, which deal with the rate of banking and contractual obligations, respectively.

Consequently, the interpretation of both sections was scrutinized, particularly focusing on the meaning of “the rate of banking,” whereby the Supreme Court interpreted that the term ‘rate of banking’ includes the interest rates that banks apply to loans and other facilities.

Implications of the Ruling

• Regulatory Oversight: The ruling strengthens regulatory oversight and compliance within the banking sector, aligning with section 44 of the Banking Act, which mandates approval from the Cabinet Secretary before increasing the interest rates.
• Operational adjustments: This ruling will also lead to increased administrative burdens thus impacting operational efficiency. Further, it may escalate compliance costs for banks and financial institutions.
• Consumer protection: This ruling strengthens consumer protection under section 15 of the Consumer Protection Act, Cap 501, addressing concerns about high bank interest rates and safeguarding against exploitation. This regulatory step plays a crucial role in promoting public welfare and protecting consumer rights.
• Legal Precedent: It establishes a legal precedent that could influence future banking regulations and decisions, establishing norms for handling interest rate adjustments within the regulatory framework.

Measures that the banks/financial institutions can undertake

• Engagement and Advocacy: Banks can initiate discussions with stakeholders, including, the National Treasury of Kenya, to address necessary adjustments that balance economic considerations with industry needs.
• Customer Communication: Banks have commenced informing their customers about the regulatory changes as required by the Banking Act. This proactive communication helps maintain trust and manage customer expectations.

Please contact us at Info@cfllegal.com should you require further information.