CBK boss warns banks against taking advantage of Kenyans

CBK boss warns banks against taking advantage of Kenyans

Central Bank of Kenya (CBK) Governor Patrick Njoroge has cautioned banks against side-lining borrowers in the aftermath of the interest rate caps repeal.

While speaking on Friday at the third Kenya Bankers Association (KBA) Catalyst Awards, the usually tough talking Governor took the more approachable route in his underscoring the symbiotic relationship between the banking sector’s growth and customer satisfaction.

“We must satisfactory respond to the questions at the top of every Kenyan mind and ask ourselves on what will be different this time. We must not fail Kenyans as it is the banking sector owes its existence,” he said.

The remarks by the reserve bank’s chief executive came hot in the heels of the week long controversy on the pricing of new loans with banking executives seemingly split on transitioning back into the free credit market regime.

However, cognizant of the intent of the rate cap repeal, Njoroge has asked banks to take the lead in the setting up a sound and sustainable financing model even as he intentionally walked round the interest debate saving it for the November 26 post Monetary Policy Committee (MPC) briefing.

“With great power comes great responsibility. This is the time to risk it all. If we don’t risk all to recover what we’ve put out there then we’re stuck,” he added.

In his lobby on the lifting of lending rates to the National Assembly last month, President Uhuru Kenyatta backed commercial banks to employ their best behavior in dealing with clients, highlighting co-authored interventions to address transparency between his government and commercial banks.

“The Government and the banking sector have initiated programs and measures to deal with the concerns of affordability and availability of credit from banks and at the same time strengthen the vulnerable sectors especially the MSMEs, women and youth,” noted part of Presidential memo read out to MPs on October 17.

On its part, the CBK introduced the Kenya Banking Sector Charter in February this year with the view to find new road maps to addressing transparency in the banking industry.

Anchored on the building of customer centricity, risk based credit pricing and ethical financing, the Charter requires banks to among other changes, establish key fact statements on the pricing of all products and provide rapid and real-time feedback to customer complaints.

The CBK is however still keen on seeing the full implementation of the Charter, conscious of slippages to implementation.

The real test to a transformed banking sector will however come from the eventual pricing in and inclusion of the so called ‘risky borrowers’ who largely comprise of small and medium enterprises (SMEs).

By the bankers own estimations, the entry of interest caps pulled the credit curtains down on more than 1.2 million borrowers even as the size of loans increased by 47 percent on an account of more lending to the perceived less risky clients including large corporate clients and government as SMEs got pushed into exploitative informal channels.

The slowdown in credit growth to the crucial economic growth is mirrored by the plunge in private sector credit growth which dipped to the low single digits in the aftermath of the caps from an average high of 15 percent.

Global credit rating agency Moody’s has termed the lifting of lending rates as a credit positive, predicting an increase in loans and advances to the secluded economic segments.

“Because banks are able to better price their risks without a rate cap, we expect higher overall loan growth over the next 12-18 months and increased lending to segments of the economy that have had subdued growth and access to credit, primarily SMEs in sectors like trade and real estate,” noted the agency in a November 6 note.

“Along with increased loan growth, we expect that Kenyan banks’ nonperforming loans (NPLs) will continue to stabilize and the NPL ratio will gradually decline, while economic growth remains strong around 6 percent”