The Supreme Court has ruled that financial institutions must obtain approval from the Finance Cabinet Secretary before increasing loan interest rates.
This decision stems from a legal dispute between Stanbic Bank and Santowels Limited, which has clarified the regulatory framework governing lenders’ rate-setting discretion.
Interest Rates on Loans and Facilities Advanced
The case centered on whether banks could unilaterally adjust interest rates based on client contracts or if such changes required regulatory oversight. The Court stated:
“A declaration do hereby issue that interest rates on loans and facilities advanced by banks/financial institutions are subject to the regulatory process under Section 44 of the Banking Act. In that, such banks/financial institutions are required to seek the approval of the Cabinet Secretary responsible for matters relating to Finance prior to increasing interest rates on loans and facilities advanced.”
The conflict arose from loan and overdraft facilities Stanbic Bank provided to Santowels Limited between 1993 and 1997, with terms allowing for interest rate changes.
A disagreement over applied rates led to legal action. Both the High Court and Court of Appeal ruled that banks must secure approval for rate increases from the Finance Cabinet Secretary.
Stanbic Bank, dissatisfied with the Court of Appeal’s decision, attempted to bring the case to the Supreme Court, arguing that interpreting Sections 44 and 52 of the Banking Act was of public importance.
However, the Supreme Court dismissed both Stanbic Bank’s appeal and Santowels Limited’s cross-appeal regarding the amount of overcharged interest awarded by the lower court.
