Banks’ stigma fear misplaced

Central Bank of Kenya. FILE PHOTO | NMG

By BUSINESS DAILY
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Summary

• Banks that feel embarrassed by taking loans from the lender of last resort should arrange their affairs in such a way that they avoid making that “shameful call” in the future.
• While it is true that receiving the short-term credit facilities from the CBK has historically been a marker of financial distress, nobody can make a serious argument that this is enough to hurt a bank’s business

The proposal by banks to borrow funds from the Central Bank of Kenya (CBK) in secret is laughable. The lenders cannot have it both ways. The CBK is, of course, funded by taxpayers and the use of its resources must be done transparently and with prudence.

Banks that feel embarrassed by taking loans from the lender of last resort should arrange their affairs in such a way that they avoid making that “shameful call” in the future.

While it is true that receiving the short-term credit facilities from the CBK has historically been a marker of financial distress, nobody can make a serious argument that this is enough to hurt a bank’s business.

Disclosure has never been perilous. It is failure to access those short-term loans that has proved fatal for some institutions that found themselves the victims of bank runs for various reasons, including revelation of fraud.

The CBK should continue to make the loans available to deserving banks and record the transactions for transparency and accountability. This is what everyone expects.

Institutions that are disagreeable to this practice should seek alternative sources of funding, including their shareholders and private sector lenders who may prioritise their need for discretion