Republican presidential nominee Donald Trump addresses supporters at the
Cleveland Arts and Sciences Academy in Cleveland, Ohio, on September 8,
2016. AFP PHOTO
By OTIATO GUGUYU
In Summary
President Uhuru Kenyatta’s decision to sign into law the
Bill capping interest rates, UK’s decision to exit the European Union
and the rise of Republican nominee Donald Trump point at a risky global
trend of populism with little concern for consequences.
Some commentators are hinting at the death of neo-liberalism, a
theory that has guided economists who believe in market freedom and
small government as a guarantee to fairness and equality. In its place
they foresee the rise of anti-elitism across the globe.
Lionel Laurent, a Bloomberg Gadfly columnist covering finance
and markets who previously worked at Reuters and Forbes, says Kenya
offers a timely reminder of financial markets’ complacency about the
risk of populism and the attractiveness of bashing banks to win votes.
When Kenya introduced a law setting a cap on commercial lending
rates and a floor on deposit rates, banks were hit with an instant
squeeze on margins that sent their shares to the lowest point in years,
he notes.
“Investors were clearly unprepared for a measure designed to
make banks poorer—or less greedy, depending on your point of view—in the
face of what President Kenyatta described as ordinary citizens’
frustrations about the cost of credit and earnings from deposits,” he
said.
He admits that Kenyan lenders make huge returns with the
country’s largest bank by assets, KCB Group, earning a return on equity
of 24.7 per cent while rivals Co-operative Bank and Equity Group are on
24.5 per cent and 26.9 per cent respectively.
“That’s not just leagues ahead of the 5-7 per cent ROE (Return
on Equity) at Europe’s biggest banks, it beats the 15-18 per cent at
South Africa’s top lenders,” he said.
He, however, warns if banks stop catering to anyone but the
safest credit risk, this may encourage shadow banks or dodgy lenders to
step in.
And if smaller banks find it harder to make ends meet, they may get bought up, making dominant banks even bigger.
He said in the US, there are calls for a restoration of
Glass-Steagall law, which was enacted as an emergency response to the
failure of nearly 5,000 banks during the Great Depression prohibiting
commercial banks from engaging in the investment business.
“Championing the banks, in particular, isn’t much of a vote
winner. The US election has put the restoration of Glass-Steagall back
on the table, with Republicans calling for big banks to be broken up,”
he wrote.
He says the Kenya experience shows the potential for nasty surprises in a populist age, whether self-harming or not.
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