CBK boss optimistic as banks’ first quarter profits hit Sh54.8b

Treasury cabinet secretary Henry Rotich addressing the press on the eurobond at statehouse flanked by central Bank governor Njuguna Ndung’u and solicitor general Njee Muturi. [PHOTO: TABITHA OTWORI]

NAIROBI, KENYA: The dream of a common currency for the East African Community (EAC) countries could come true within the timeline set under the Monetary Union Protocol.

The protocol was signed by the EAC Heads of State in November last year. According to Central Bank Governor Njuguna Ndung'u, EAC Central Banks have already started harmonising their supervisory and regulatory rules and practices.

Ndung'u explained that regional expansion by Kenyan banks has created positive impact across Africa economies and beyond, adding that 11 banks had established subsidiaries in the EAC member States and South Sudan.

"One Kenyan bank owns a 50 per cent stake in a Mauritius bank while another local bank has a minority stake of 11.4 per cent in a bank operating in Malawi. This snapshot of cross-border operations of Kenyan banks demonstrates that the banking sector has made a significant contribution to the economic growth of the entire Eastern Africa region and beyond," he said. "The practices of Kenya's banks operating outside the country are serving as best practices in some of the host countries."

Ndung'u observed that the banking sector recorded an improved performance with the balance sheet expanding by 15.6 per cent, from Sh2.50 trillion in May 2013 to Sh2.89 trillion in May 2014, mainly supported by an expansion of banking services and financial inclusion.

"The sector's profitability increased by 12.5 per cent from a profit before tax of Sh48.7 billion for the quarter ended May 2013 to Sh54.8 billion for the quarter ended May 2014. The gradual improved performance has been supported by continued roll out of innovative banking products, adoption of cost-effective delivery channels, and continued expansion of banks across the country and beyond Kenya.

Ndung'u further said the Eurobond secured by the Government last month will ensure that banks will henceforth allocate a bigger percentage of their funds to domestic lending. It is understood that to achieve a harmonised and improved supervisory and regulatory framework, EAC Central Banks agreed to use the international standard setting bodies such as the Basel Committee on Banking Supervision, Financial Stability Board and Financial Action Task Force as a basis for the harmonisation exercise.

CORPORATE GOVERNANCE

According to Prof Ndung'u, the main aspects of the supervisory and regulatory rules and practices that will be harmonised include the legal status of licenced entities, licensing requirements, licence validity, prudential requirements on capital and liquidity. Others include corporate governance requirements, permissible activities, prudential returns and public disclosures.

Prof Ndung'u who has reportedly been caught in the crossfire of a group of local business cartels positioning themselves for an upcoming multi-billion currency printing contracts said the move to have a single currency for EAC has made progress.

"The starting point was a request in 2011 to the players, especially those with regional presence, to indicate the aspects they would wish to be harmonised.

The EAC Central Banks have developed convergence criteria for all aspects of divergence and expect to attain convergence by the Monetary Union Protocol deadline of 2018. This e increase the market size for local banks, allow diversity of banking products and strengthen financial institutions. "We have introduced the East African Payment System to reduce the cost of doing business. We are now working on convertibility of the EAC currencies and MOUs have been signed," he said. These initiatives will bring the EAC closer together.