-Editorial
Kenya’s banking industry remains one of the most profitable today, piling cash on lucrative Government paper, while pushing aside the small depositor, the main source of cheap deposits.
A protest by Deputy President William Ruto, Parliament, business community and the general public over exorbitant rates banks charge on bank loans, has largely fallen on deaf years.
While the industry regulator Central Bank of Kenya (CBK) is watching helplessly on the sideline. For all intents and purposes, it is morally wrong for the a group of commercial banks to organise themselves into a monopoly, collect cheap deposits from the public and lend the same at exorbitant rates, pocketing the huge difference in what economics describes as ‘supernormal profits’. It is a case of killing the goose that lays the golden egg.
Banks have their treasury departments tuned to Government appetite for cash and will therefore collect deposits cheaply and put into Treasury Bills and a bond, making a kill as the private sector is priced out of the credit market. While credit information sharing has been expanded beyond reporting on serial defaulters, banks can also identify the good borrowers, thus lowering the bank’s exposure when lending to their customers. Yet when one is seeking a loan facility, rarely does the bank bring up the customer’s credit score when pricing the facility.New buildings are coming up on Nairobi’s skyline and yet many of these developers are not going to banks for mortgage products, which charge upwards of 18 per cent.
Where is the cash going into real estate coming from? While banks are making these huge returns, this performance may not be impressive given the huge pile of non-performing loans also showing on their books. This is an indication of low quality lending.
High interest charges need to be looked at closely, causes identified and the trend tamed.
