Rotich tells counties to drop regional bank plan, try microfinance

Treasury Cabinet Secretary Henry Rotich has once again poured cold water on the proposed plan by 14 county governments in Western Kenya to set up a regional bank, saying the idea is not viable.

Appearing before the National Assembly Committee on Finance and National Planning, Mr Rotich said the counties, under the Lake Region Economic Bloc, do not have the financial clout to sustain a bank.

The Treasury CS advised the counties to first experiment with a micro-finance organisation if they must continue with the plan.

Mr Rotich was responding to questions from the committee chaired by Kipkelion East Member of Parliament Joseph Limo on whether it was a good idea by the Lake Region Economic Bloc counties to start a bank at a time when the national government was merging its own due to mismanagement and other issues.

“If the national government has been struggling to manage its banks, it will be difficult to have a county do it. We have been telling them that this agitation of saying we want a regional bank is not viable,” said Mr Rotich. “The 43 banks we have in the country have branches in every region. So for counties to insist that they’d set up one to cover a particular region does not make any sense because there is no gap and there is no rationale for a bank for a particular region.”

The committee had invited the CS to address concerns around the proposed acquisition of the troubled National Bank of Kenya (NBK) #ticker:NBK by the Kenya Commercial Bank (KCB) #ticker:KCB. The State has stakes in the two banks.

The existing banks, he said, are sustained by collecting substantial deposits in major urban areas like Nairobi and are then able to mobilise smaller regions where deposits are low. But confining a bank to one region that may not have sufficient deposits will not make any economic sense, he warned.

“It’s already becoming difficult to run a bank with presence in the entire country where only 10 banks run 70 per cent of the assets, while about 30 banks control the little remainder. So you can imagine how a regional bank will survive,” the CS said.

Mr Rotich said that the regional banks idea works well in America because the country has large states which can sustain the business.

The MPs put Mr Rotich to task on whether the proposed merger of NBK and KCB was the only option.

He maintained the merger will greatly boost the value of shares at NBK.

“We have explained why banks ran by government are doing poorly. It's not economical for government to be running banks, as there is already the private sector,” he said.