The scorecard of CBK governorFriday March 31 2023
The Public Service Commission has started the process of recruiting a new governor for the Central Bank of Kenya. Can we, for once, keep the standards and qualifications for the next governor high?
The job of running and managing the nerve centre of our country’s financial system should not be given on the basis of patronage alone.
For once let's leave out individuals with prior court cases, tax dodgers with pending issues with the Kenya Revenue Authority, and individuals under investigation by the Ethics and Anti-Corruption Commission.
The reason the outgoing governor, Patrick Njoroge, has enjoyed public support is not because of his performance of the core mandate of the Central Bank of Kenya, namely, price stability, a safe and sound financial system and monetary policy.
A man devoid of ego, and a public official who unlike his peers is instinctively averse to self-advertisement, he is admired for bringing freshness and integrity into public life.
The reason he has occupied the moral high ground is that his style was viewed against a backdrop where public life and leadership are dominated by self-absorbed elites engaged in blind pursuit of corruptly acquired wealth and opulent lifestyles.
It is the strength of character he brought into public leadership and management of the nerve centre of the country’s financial system that has earned him public admiration and trust.
Indeed, our leadership values have degenerated to levels where, while it needs no courage to do the wrong thing, it needs a lot more courage to do the right thing.
We did not agree with the governor when, during his parliamentary nomination hearings, he spoke against policy-led consolidation of banks and for market-led reforms.
Several years later, he came out as a fervent supporter of the merger of the Kenya Commercial Bank and the National Bank of Kenya.
The merger of the State-owned banks was a good example where consolidation is policy-led.
Then there was this time when voices in the banking sector disagreed with him on how he had chosen to implement the interest rate capping law in 2015.
Governor Njoroge chose the policy rate (the Central Bank Rate) instead of the Kenya Bankers Reference (KBRR) as the basis for calculating the cap.
He was hardly in office for months when Dubai Bank, Imperial Bank and Chase Bank collapsed like dominoes. Critics raised doubts about his stewardship of the banking sector, charging that the Central Bank had displayed little capacity in the ability to manage and resolve such crises.
There was a time when he sent shockwaves through the banking industry by suggesting criminal proceedings against CEOs of banks that failed to report suspicious transactions relating to scandals like the National Youth Service ones.
As he leaves the scene, critical voices say that the prevailing dollar liquidity crisis facing the country was partly a failure of the conduct of monetary policy.
Maybe he should have increased rates in order to attract and increase portfolio flows.
That he lost a good opportunity when the country still had adequate reserves- and when monetary policymakers had the latitude to allow the shilling to go to the levels where the market wanted it.
Dr Njoroge is also criticised for displaying a haughty attitude, for impulsively dismissing criticism as ill-informed and for poor communications and relations with players and stakeholders in the foreign exchange markets.
What qualifications, experience and domain knowledge should we demand from the next governor? The list is long but I would demand the following.
First, you must demonstrate that policy-led bank consolidation is a top priority for you. We need fewer, larger, and well-capitalised banks as happened in Nigeria under the former Central Bank of Nigeria’s governor, Prof Charles Soludo.
Secondly, can we have a little more transparency in the operations of the Monetary Policy Committee (MPC)?
The best practice in other jurisdictions is that the MPC publishes its minutes on a public website. We want to know the inflation hawks and the doves in this committee.
Thirdly, I need a governor committed to championing reforms in the financial sector such as the introduction of a system of primary market dealers. We have been talking about introducing horizontal Repos for years.
The new governor should commit to putting credit-only digital lenders under tighter regulation
Even more urgent, applicants should tell us that they want to strengthen oversight and control over the mobile financial market infrastructure.
During the terror attack on Dusit2 Hotel, we saw how vulnerable our systems still are to money laundering by terrorists.
I say all this knowing that the remit of our CBK is just too wide and needs to be reduced.
Our Central Bank prints currency, licences and supervises banks, manages and issues government securities, is in charge of monetary policy, owns the School of Monetary Studies and is — albeit indirectly — the power behind the Kenya Deposit Insurance Corporation (KDIC) and the FRC.