The Supreme Court has declared that banks and financial institutions must seek approval from the Cabinet Secretary for Finance before increasing interest rates on loans and facilities.

This follows a case between Stanbic Bank and Santowels Limited that has clarified the regulatory scope of lenders’ discretion on rates.

The dispute was centered on whether banks could unilaterally vary interest rates based on their contractual terms with clients or if such changes were subject to regulatory oversight.

“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,” said the apex court in its ruling.

Stanbic Bank had advanced loan and overdraft facilities to Santowels Limited between 1993 and 1997, with terms allowing for interest rate variations.

However, a disagreement over the applied interest rates led to litigation. Both the High Court and the Court of Appeal ruled that banks must obtain approval from the Cabinet Secretary for Finance before raising interest rates, as mandated by Section 44 of the Banking Act.

Unsatisfied with the Court of Appeal’s ruling, Stanbic Bank sought to escalate the matter to the Supreme Court, arguing that the interpretation of Sections 44 and 52 of the Banking Act was of general public importance.

The Supreme Court, however, dismissed both Stanbic Bank’s appeal and Santowels Limited’s cross-appeal, which contested the amount of overcharged interest awarded by the Court of Appeal.