EQBNK,KCB | Geared to the caps
Interest rate caps will remain in place in Kenya after MPs voted against the proposal to remove them. Equity Bank (most geared to the removal) and KCB declined c.9% and c.5% respectively following the news. In our view, the caps prevent banks from pricing for riskier assets, limiting loan growth specifically to the SME sector. The banking sector will likely continue advocating for a repeal however, we expect the caps to remain in place indefinitely. Whilst the decision to not repeal the caps was negative, we believe both banks have demonstrated their strategic nous in response to the constraints of the interest rate caps. In our view, the negative reaction to the news offers attractive entry points to two quality counters.
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