Forced consolidation is the only way to go if banks are to be strengthened to withstand industry shocks.
This was the message from KCB Group CEO Joshua Oigara, Kenya Bankers Association CEO Habil Olaka and NIC Bank CEO John Gachora at a business forum over the weekend.
The three said no other sector in the country has as many players as the banking sector, which was weakening it.
Kenya has a total of 44 banks, some which are too small and could easily collapse if a few depositors default on loan repayments, they said.
They added that regulating all these lenders was putting undue pressure on the Central Bank of Kenya (CBK).
“I remember when Kenya Pipeline needed finance for a project it was undertaking. No single Kenyan bank could come up with the money. It needed a total of 11 banks to come up with the funds, which is unsustainable,” said Mr Oigara at the Mindspeak forum hosted by investment analyst Aly-Khan Satchu in Nairobi.
Mr Gachora added that consolidation would bring interest rates down since one big bank could better withstand the risks of default than several small banks.
“I always give the example of KCB with a capital of Sh55 billion, yet it can only lend Sh15 billion since the law allows a bank to lend only 25 per cent of its capital. There are businesses and development projects that need more than this amount. Consolidation will make more money available for lending,” said Gachora.
However, CBK Governor Patrick Njoroge is against the idea of forced consolidation, saying the move would only create more dominant banks that are “too big to fail”.
The CBK chief, speaking after Chase Bank was placed under receivership last month, said he prefers better supervision of banks over having larger lenders.
“At the end of the day, the Central Bank is quite uncomfortable with this proposal of pushing lenders toward consolidation,” Dr Njoroge said.
He, however, said he expects “natural consolidation” to occur, adding that there is no ideal number of banks for Kenya, and that small institutions with strong business models can be stable.
Oigara further called for rogue bank CEOs to be jailed to bring sanity to the industry.
He added that he was optimistic about Chase Bank, which his bank is managing, saying customers had come back overwhelmingly to open accounts.
The issue of social media, which was blamed for misrepresenting information on Chase Bank’s situation, leading to mass withdrawals, was also addressed.
While Gachora and Mr Olaka said social media was a threat and was to blame for Chase Bank’s woes, Oigara rejected the argument, saying banks should work to engage with social media positively.
CODE OF ETHICS
Olaka’s association was accused of only checking on the welfare of banks and ignoring depositors, a claim the CEO disputed.
He said KBA is coming up with a code of ethics that was being drafted with the help of the Kenya Private Sector Association (Kepsa) to uphold consumer protection.
Olaka also announced that the association was planning to launch a specific portfolio that would boost small and medium enterprises (SMEs) in terms of capital
“We are seeking to come up with a Sh30 billion fund to help SMEs get loans for capital. We will also invest Sh100 million in training these entities that are the engines that run our economy,” he said.