Revamp the team studying why credit has become too costly for most people

PHOTO | FILE Deputy President William Ruto speaks during a past function. He has challenged the Central Bank of Kenya to address the high cost of credit.   NATION MEDIA GROUP

In Summary

• When you take your own savings and deposit it with a bank, they will pay you very little interest. They will take that same money and lend it out at usurious rates to another person, hence the wide spreads we see today.
• Banks justify the wide spreads on loans on the grounds that systemic non-performing loans are too high. Yet when you track the movement of systemic non-performing loans in recent years, you will realise that they have fallen drastically.
• My advice to Mr Ruto is the following. If you leave this thing to the Central Bank’s committee, you will not get anywhere.

 

By Jaindi Kisero
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Deputy President William Ruto is on to a good thing. He has challenged the Central Bank of Kenya to address the high cost of credit.

He has also challenged the Bank to come up with a solution for the low uptake of mortgages in the country.

The first time was during the launch of the Kenya@50 coin in December. He raised the matter again during a seminar hosted by the World Bank.

Mr Ruto deserves full support for sticking his neck out on what, in my humble opinion, is one of the greatest impediments to economic growth in this country – the high cost of credit and the inability of our financial system to provide long-term money to the investing public.

When you take your own savings and deposit it with a bank, they will pay you very little interest. They will take that same money and lend it out at usurious rates to another person, hence the wide spreads we see today.

Spreads in this country are among the highest in the whole world. Our banks are greedier than the merchants of Venice.

I gather that the Central Bank of Kenya has set up a team to study the situation and suggest solutions.

The 15-man committee to be chaired by the governor himself, is to complete its task in three months and present its report to the Deputy President and the President by March.

But can this committee accomplish the task within the short time-frame? This is not a problem you can solve through a quick-fix.

I also have major issues with the composition of the taskforce. It is too skewed in favour Central Bank staffers and the Kenya Bankers’ Association insiders, whose first instinct will be to defend the status quo.

Out of the 15 members, eight are Central Bank staffers. KBA itself is represented by two officials and two private practising bankers.

Then you have two members of the Central Bank’s Market Leaders Forum and one representative of the Financial Sector Deepening Trust.

If I were Mr Ruto, I would direct that this committee be disbanded and replaced by a group that reflects wider shades of opinion.

It is foolhardy to depend on a committee of poachers to advise you on how to reduce the incidence of elephant poaching in the Masaai Mara.

Banks justify the wide spreads on loans on the grounds that systemic non-performing loans are too high. Yet when you track the movement of systemic non-performing loans in recent years, you will realise that they have fallen drastically.

They also claim that the process of recovering their loans in case of a default through litigation takes too long, and that the cost of collateral is too high.

Yet we all know that although inefficiency at the Lands Department is still a problem, a great deal has been achieved in reforming the Judiciary.

I have never understood why banks make a big deal about land considering that we only have 17,000 mortgages in the whole country.

Clearly, this is a very small percentage of the total assets of the banking system.

They say it is the cost of funds. That they do not have too many sources of long-term funds. Yet we all know that they pay very low interest on deposits.

Statistics will also show that most banks enjoy a stable base of deposits.

They will cite macro-economic fundamentals. Yet inflation is low, the budget deficit to the Gross Domestic Product (GDP) ratio has been below four per cent for years, and apart from the volatility we experienced in 2011, the exchange rate has been stable.

My advice to Mr Ruto is the following. If you leave this thing to the Central Bank’s committee, you will not get anywhere

.

Why are were forcing the bank customer in this country to bear the cost of too many ATMs when banks can use one switch like in South Africa? If you go to the Sarit Centre today, you will count more than 10 ATMs.

Why is the customer made to bear the cost of all 44 banks erecting a core banking system?

Banks must be made to bring down the spread between the cost of deposits and lending rates.