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My struggle to make the huge profits banks earn count for every Kenyan

By Domnic Omondi | December 3rd 2019 at 09:44:47 GMT +0300

CBK Governor Patrick Njoroge (PHOTO: FILE)

Opus Dei, an organisation run by the Roman Catholic Church under which the Central Bank of Kenya (CBK) Governor Patrick Njoroge belongs, means “Work of God” in Latin.

Going by his prelate’s teachings, Dr Njoroge, 58, must believe that in the last four and half years that he has been at the helm of the apex bank, he has been doing nothing but God’s work - serving the people of Kenya.

He rarely mentions the name of Christ in his official duties, but Christ’s philosophy is all over his workmanship.

But policing a sector that has been reviled throughout history for its penchant for profiteering has been a tall order for the soft-spoken celibate governor.

Yet, in the next few months following the repeal of the interest rate cap, his crusade will largely involve converting banks into believers of public interest rather than self-interest.

“They (banks) should stay away from short-term gains….They should not be asking: what will be the return to the shareholder? ROE (Return on equity), ROI (Return on investment)… all those jargon that you (members of the press) are much more familiar with,” said Njoroge in his post-Monetary Policy Committee meeting press briefing last week.

“No, they should be looking at things in the more medium term, and therefore working to serve Kenyans. Banks exist to serve Kenyans, not for other things.”

Even before Parliament passed the rate cap in September 2016, Njoroge had on several occasions pleaded with lenders to tame their high interest charges to no avail.

It was only after the controlled regime that banks yielded to growing public outrage and promised a more friendly rate if the interest cap was lifted.

For Njoroge, easy credit access to all Kenyans, including mama mbogas, was critical to jumpstarting a slowdown in the economy. But several scholars, such as historian Yuval Noah Harari and John Rapley, an international relations scholar, have in the past noted that capitalism, the belief in a free market, is a religion on its own.

Njoroge knows just too well that bankers are in a system which offers them a comprehensive “doctrine with a moral code promising (them) salvation in this world.”Attainment of profit to bankers and many other believers in a free market is the Buddhists’ equivalent of achieving “nirvana.”

For the bank of last resort boss, he does not expect lenders to go back to their banditry ways of charging prohibitive interest rates to every borrower, regardless of the individual’s risk. He wants bank shareholders to reduce their appetite for fat profits, which he blames for the vicious race-to-the-bottom competition between lenders, manifested in higher interest rates.

He had voiced similar sentiments earlier during the launch of the International Monetary Fund (IMF) regional outlook for sub-Saharan Africa in Nairobi. “Bank shareholders should be accepting more of lower returns. Return to equity needs to come down. It has already started going down,” he said.

A high ROE or profitability might signal lack of competition in the banking sector, though a recent report by the IMF ruled out lack of competition among the country’s lenders.

Since the repeal of the interest rate cap, which the governor welcomed, he has been campaigning for banks not to revert to their “Wild World West” manners that prevailed before September 2016, when the Banking Amendment Act was enacted.

He wants banks to be customer-centric this time round.

Njoroge is even reported to have been unhappy with a decision to revise interest rates by one of the banks through a staff memo barely 24 hours after President Uhuru Kenyatta signed into law an amendment that scrapped the capping on lending rates. The memo was immediately withdrawn by the bank.

According to the rates proposed by the bank, it would charge up to 19 per cent for loans, an increase from 13 per cent under interest caps. Working for God for Dr Njoroge does not only entail putting people before profit. It also means respecting rules, ethics and laws of the land.

He had barely been in office for a year when two banks crumbled, in what some analysts said was due to his emphasis on probity.Dr Njoroge, a former IMF honcho is, however, a man of faith whose daily oil at his office is logic.

If he believes in miracles and angels as a typical church-goer, he has not been so nice to those who make economic or financial decisions based on hunches, emotions and rumours. Self-made financial analysts who seemed to consult a crystal ball before they gave their projection of the shilling have been put to the task - and the local currency has largely remained stable as a result.

He has no time for alchemists and second-guessers. He recently tore into suspended Treasury Cabinet Secretary Henry Rotich’s performance at the Exchequer and his (Rotich’s) over-estimated tax revenues as being based on “abracadabra” economics.

He fell short of accusing former Treasury officials led by suspended National Treasury Cabinet Secretary Henry Rotich of cooking the books.

“Revenues in the past were overstated, completely overstated,” he observed.

This came barely a month after the CBK governor seemed to contradict  Treasury’s well-rehearsed official narrative of economic growth trajectory.

A growth that is largely driven by excessive spending on infrastructure, he noted, was not necessarily benefiting Wanjiku.

He has also had to tell some people, like Rotich and his team, the bitter truth.

After all, God abhors dishonesty and hates corruption in any form. “The issue of corruption is a significant drain to any community, society or economy. That is why there is a need to deal with the issue decisively,” Njoroge said, adding that those accused must be given a fair hearing.

He has lashed out at the executive for trying to muzzle the CBK through what he described as “fiscal dominance.”

He reckons that this is why the national debt has been allowed to rise to levels that the government is unable to pay with taxes, requiring monetary policy’s support to stay solvent.

In other words, instead of CBK doing its core job of ensuring that prices remain stable, it is frantically trying to keep the government afloat.

The CBK governor reckons this is exactly what the interest rate cap regime had tended to encourage, which was damaging to the economy at large.

With the interest rate capping, he said, CBK’s foot was always on the brake pedal while that of National Treasury was on the accelerator. Treasury was having a field day snapping up cheap loans, even as CBK’s main monetary policy tool (Central Bank Rate) was rendered ineffective.

He even warned of fringe elements in the government who were hell-bent on taking the country to the dark days when CBK would intermittently be called upon to print money to save a broke government.

Njoroge was also among the first to mutiny the official narrative that debt was sustainable at a time when both the National Assembly and the Executive inexplicably defended debt sustainability.

He is, however, not beyond reproach. His overzealous defence of the shilling has amused some analysts who see his action as overstepping the legal boundaries.

But for the governor, he values order and stability over freedom and adventurism. His strong critics, however, blame his action largely on the slow credit growth in the market.

Some of those whom we talked to but did not want to be named argue that  Njoroge is always suspicious of anything unregulated from cryptocurrencies like bitcoin to online forex and mobile lending platforms such as Tala and Branch.

He has warned that such economic activities are a threat to the country’s financial stability and links them to money laundering. His predecessor, Prof Njuguna Ndung’u, was a carefree man, so much so that he has been accused of going to bed with banks.

But during his time, credit to the private sector grew by as high as 25 per cent. On the flip side, the shilling weakened to exchange at 106.2 against the dollar in 2015 as speculators had a field day.

A 2018 report by the IMF noted that Kenya’s currency was “managed,” in effect blaming Njoroge for propping up the local currency.

“We are being used as a guinea pig on the External Balance Assessment-Light methodology,” said the governor in reply to the IMF accusations. “The methodology was used in a black-box method.”

It was also during Njuguna’s term that Kenya took a gamble with the novel idea of money transfers - M-Pesa - and which has since put the country on the global map of financial inclusion.

But the current CBK governor won’t let people gamble with public money.

With his first term coming to an end MPs have threatened to block another term for putting up restrictions on deposits and withdrawals of cash from banks.

But Njoroge is unfazed by the threats.

“I never worry about these things. You cannot worry about things that you can’t change. I worry more about the things that are in my control. That is the only thing that matters. I have learned that speculation doesn’t always lead you anywhere. If anything, it raises your anxiety level and I do want my blood level to be sort of more or less the same,” he told reporters recently. There is no doubt that the law of demand and supply is just one of the many truisms that the CBK boss has defended, at least going by his support for the removal of interest rate caps.

After all, his professional background sanctions profit as a means to prosperity on earth. But his religious teaching warns against material greed as the main detractors to an afterlife of bliss.

It has certainly been difficult for him trying to reconcile religious ideology that seems to favour order over an economic system that favours freedom as the path to nirvana.

Abnormal profits

Opus Dei’s idealism, like many other Christian teachings, emphasizes selflessness on earth for rewards in the afterlife.

He is passionate about the welfare of Mama Mboga (greengrocer).

In his last press briefing, he said his biggest worry this year has been the lack of credit by small and medium-sized enterprises (SMEs).

But for the highly materialistic society whose economic system that Dr Njoroge oversees is based on self-interest. This is why his appeal to shareholders not to expect abnormal profits is a misnomer, given that scholars such as Nobel laureate Milton Friedman said, rather controversially, that “there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits.”

While Milton’s shareholders’ theory has been widely debunked, Njoroge’s crusade for the removal of interest rate controls means that besides being a member of the Opus Dei order, he is also an avowed disciple of the New Liberal order.

Another member of the Opus Dei, Dr George Njenga, deputy vice-chancellor at Strathmore University and the Dean, Business School, believes that Njoroge has been able to reconcile the two.

“Lower returns could arise from many things, including a desire to invest in long-term growth – a very Christian approach,” said Njenga.

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