The Supreme Court has, in a recent decision rendered on 28 June 2024, held that banks must seek approval from the Cabinet Secretary responsible for Finance (the CS) prior to increasing interest rates on loans and facilities.

Finding

This decision is an interpretation of Section 44 of the Banking Act (the Act), which provides that institutions should not increase their rate of banking or other charges except with the prior approval of the CS.

The Supreme Court in coming to its decision was of the view that the use of the words ‘charges’ and ‘rate of banking’ above in relation to loans includes and covers interest relating to loans.  The Supreme Court was also of the view that the removal of capped interest rates did not fully liberalise interest rates but only allowed banks and customers to negotiate within certain parameters.

What this means for you

The import of this decision is that it renders unapproved increases to interest rates unenforceable. However, this restriction does not prohibit or prevent banks/financial institutions from negotiating and entering into contracts that provide that banks may increase their interest rates. Nevertheless, these increases would require CS approval.