By Duncan Miriri
NAIROBI (Reuters) - An annual private sector credit growth rate of less than 5 percent cannot sustain Kenya's required economic development, the CEO of Standard Chartered Kenya <SCBK.NR> said on Tuesday.
The government should consider repealing its cap on commercial rates in the long run to boost credit growth, which plunged to close to zero from double digit expansion after the cap was imposed in September 2016, Lamin Manjang told Reuters.
The cap, at four percentage points above the central bank's policy rate, was a bid to lower credit costs.
An attempt by Finance Minister Henry Rotich to repeal the cap in June was blocked by lawmakers in August.
"The rate cap is still unfortunate. Obviously, the overall credit growth in the market is still below 5 percent which is really not sustainable. It is not optimal," he said during an interview in his office.
"In the long run it is better to have market forces determine interest rates."
Lawmakers have removed a floor on commercial deposit interest rates, which had been set at 70 percent of the central bank rate, a move that Manjang said was a "step in the right direction."
He said it would help lenders to boost their margins, without providing details.
Bank sector earnings rebounded in the first half of the year after being pummelled by the cap and other factors including a drought and election jitters last year, Manjang said.
He attributed the turnaround to stable economic fundamentals, cost reduction, proper management of the risks posed by the rate cap, as well as investments in digital channels aimed at boosting cost efficiency.
StanChart Kenya expects to maintain its performance in the second half of this year, after revenue grew in the first half and profit surged by close to a third, Manjang said.
The bank's wealth management business, which offers customers investment products such as mutual funds and fixed income, was growing at 30 percent per year, he said.
The wealth management business, which also includes insurance policies, accounts for a fifth of the bank's annual revenue from retail banking.
The bank plans to roll out an enhanced version of its mobile banking application by the end of the year, allowing customers to complete tasks such as opening accounts and applying for loans without the need to visit a branch, Manjang said.
The enhanced app, which was successfully rolled out in Ivory Coast earlier this year as Standard Chartered set its sights on the retail market in the west African nation, is part of a $1.5 billion investment in digital channels announced by parent Standard Chartered [STANB.UL].
"The need for branches has become less," Manjang said.
(Editing by Jason Neely)