There was a story in the press a few weeks back about [well I don’t know how to describe him but here goes] a English fella who was knighted some years ago for his services to the banking industry. He was a former CEO of one of the biggest banks in the UK and had worked in banking prior to that (since like ’95) but the funny thing is that he applied for a super-injunction in a British court to prevent the press from referring to him as a b*nker… no s**t, like really? Clearly since the global financial crisis, that was mostly blamed on the b*nkers, it seems that it’s a bit unfashionable in the West to proclaim oneself as a b*nker.
Over here, methinks it’s still a respectable profession and the institutions themselves are highly regarded. Be that as it may, there are a few tendencies by our banks that are straight up unfair.
First off, its been a good financial year (once again) for our banks, the profits have been in the billions or hundreds or millions for most of them, National Bank of Kenya actually even announced a dividend for the first time since the 90’s (hand-claps!!). The financial sector is now actually one of the biggest drivers of our GDP, right up there with agriculture and construction (more handclaps!!!).
That’s the good.
Now for the ugly. Despite the best efforts of Prof. Ndung’u and the good people of the Central Bank of Kenya (CBK), the banks just won’t take their interests rates down. The CBK has lowered the Central Bank Rate (CBR) several times over the past two years but the banks have been slow to match those cuts with corresponding cuts to their lending rates. This runs contrary to banking practice globally, be it the Fed, the Bank of England, the SARB and commercial banks in their respective countries adjust their rates in line with the monetary policy that their Central Banks try to pursue.
Clearly, Prof. Ndung’u has been attempting a loose monetary policy the last few years to stimulate the economy back to them days of 7% GDP growth. To do this the banks are having to/have had to play ball; reduced interest rates on loans assists almost all sectors of the economy but it seems that the banks have laughed at each CBR reduction. What’s more f**ked up about all this is that the deposit interests that banks now offer has hit a 5 year low. Banks now offer us an average interest rate of 1.25% per month to bank with them. At a time when inflation for the month of March was 9%, you’re better off putting your cash under a mattress [you can be sure with the bank charges and fees that 1.25% amounts to zip zero].
So in other words when the banks borrow money from CBK they’re charged interest at 6%, when they borrow from us they pay us interest of 1.25% per month and when we come borrow money from them, they charge us 13-15% [f**kin’ ridiculous!]…
To be fair to banks, their excuses they are making seem quite valid. According to them, the cost of doing business in Kenya is too high therefore a lot more goes into setting their interest rates than what it costs for them to obtain the cash. This kind of makes sense and ofcourse an area they loove attacking is the justice system…their legal suits to recover cash from bad debtors sometimes get bogged down in court for over 10 years-so that’s a double expense- the bad debt itself and the legal fees.
Despite this and many other extra costs of business in Kenya, it’s beyond doubt that banks occupy a special position in society and maximising on profit making should not be their sole maximising. Banks fuel most economies (fortunately or unfortunately), the more they lend, the more money is available to farmers, the construction industry, manufacturing, textiles, households, you name it… What is needed here is a bit of innovation, i.e a way for banks to keep making profits but still open up banking services to more Kenyans (both deposits and loans). Speaking of innovation (or lack of it), it’s interesting that a significant proportion of Kenyan banks’ profits are from Treasury Bonds and Bills—so banks basically just invest their cash in the fairly risk free market of government bonds and wait for the guaranteed income from the interest—any idiot can do that… What these people need to do is try to get that middle and lower income market who prefer to borrow from chamas and micro-finance institutions, surely an actuary can help them figure out a way to grab this market and be profitable? The sad thing is that bankers are now losing out to telephone companies (mpesa), chamas and micro finance companies. They’d rather lose that ordinary Kenyan to those groups, borrow cheap and charge high interest for those can can afford it and buy treasury bonds and bills… WAKE UP!!