CBK urges banks to tone down pure drive for profit public good

Kenyan banks must learn to balance the drive for profits against the public good, Central Bank of Kenya (CBK) Governor Patrick Njoroge has said, in the latest of his many pronouncements on the raging interest rates caps debate.

Dr Njoroge, who spoke at a Kenya Bankers Association (KBA) forum, accused lenders of ravenously pursuing profit while ignoring the dire need for innovative banking solutions that are relevant to ordinary Kenyans.

“The reason there is such palpable disappointment – and I dare say it extends to anger – against you in this room is exactly that. Wanjiku feels that her banker prefers expediency to empathy. That you would rather hunt for a loophole to pursue your interests than show leadership. Would rather seek supernormal profit than search for solutions,” he said.

KBA is holding its Seventh Annual Research Conference whose opening Dr Njoroge officiated. The two-day event brings together banking experts and stakeholders to deliberate on ways in which the financial system can “promote efficient credit allocation to the economy.” Dr Njoroge insisted that the lenders must step up the quest for solutions to financial challenges that ordinary Kenyans face.

“The old adage about the banker asking for their umbrella back when it starts raining may have been funny once, but not when the rain is this heavy, and when Wanjiku already has a flu.”

Global consultancy McKinsey in March ranked Kenyan and other African banks as the second most profitable globally.

Africa’s banks were found to have an average return on equity (ROE) — a measure of profitability — of nearly 15 per cent last year while those in Kenya registered a higher figure of 24.6 per cent on the basis of data from 2016 when a law capping interest rates was passed.

Kenyan banks collectively earned Sh58.6 billion net profit in the six months ended June, representing a 12.7 per cent growth in defiance of the two-year interest rate caps that limit margins chargeable on customer loans. The results effectively meant the banks have returned to the levels of profitability they had before the interest rates chargeable were capped.

Kenya’s interest rates are capped at four percentage points above the central bank’s benchmark rate in an attempt to limit the cost of borrowing for businesses and individuals.

The move has, however, had the opposite effect of making credit inaccessible to individuals and small business whom the lenders have argued carry higher risk than the current pricing.

Dr Njoroge, who is a staunch opponent of the rate cap, has lobbied for a return to a regime that allows commercial banks to put a risk premium on customer loans for self-assessed probability of default.

The Consumer Federation of Kenya (Cofek) has, however, said the proposed pricing model amounts to giving banks the leeway to set own high rates.

Parliament last month rejected Treasury secretary Henry Rotich’s attempt to repeal the caps.

Banks are expected to raise lending rates once the sector is returned to a liberalised regime.