NAIROBI, Kenya, Apr 2 – Local medium-sized banks that are not well capitalised should be allowed to serve particular regions of the country as a way of surviving the hard economic times, a banker has proposed.
Trans National Bank Chief Executive Officer (CEO) Dhirendra Rana revealed on Thursday that together with other smaller banks, they were going to lobby the government to issue them with licenses that would see them concentrate on having a regional outreach as opposed to a national one.
“What we are trying to lobby is (for the government) to allow for a different category of banks with regional license only. The banks that would serve specific regions only and not across the whole country, they would be of a lower asset size and therefore a lower capital would suffice for their risk mitigation,” he explained.
His remarks come at a time when the government is encouraging raising the minimum share capital to at least Sh1 billion before 2010, which would reduce their vulnerability to sudden asset-price movements as well as ensure that they have ‘the resources to support any off-balance sheet exposures.’
If the government approved their proposal, Mr Rana argued that this would also ensure the provision of financial products and services to the remote areas of the country.
He said that they were also trying to sell the idea to several Members of Parliament from the less developed areas to seek their support, particularly now that the Banking Act is under review.
“I believe that the Parliamentary Committee on Finance will be looking at the revision of the Act very soon and although we are late in lobbying for this, if this (inclusion) does not happen in this amendment, the issue will be followed up separately,” he added of their intention to push on with the agenda.
Mr Rana also said that despite the on going credit crunch around the globe, local banks were still lending, albeit more cautiously.
“The banks are being more cautious in terms of selection of borrowers and in terms of accepting the level of risk. But Kenyan banks have no hesitation whatsoever in entertaining credit requests of (the) SME sector. But if there is a proposition that is riskier this is not the year to touch it,” the CEO emphasised.
The financial sector especially in the developed world has been affected by effects of the credit crisis and economic recession, as individuals and firms struggle to repay debts, thereby resulting in a deterioration of the quality of loan portfolio, and profitability in the (financial) system.
Last week, President Mwai Kibaki urged these financial institutions to lend to the productive sectors so as to stimulate economic recovery.
The President has assured the public that the local banking sector is financially sound and secure and is therefore in no danger of collapsing.
Mr Rana spoke during the launch of a product dubbed the ‘Shughuli Account’ which is targeted at the Small and Medium Enterprise sector.
The new account is part of the 25-year-old bank’s strategy to increase its product offering for existing and potential clientele in small businesses.