NAIROBI, Kenya, Aug 13 – A banker has defended the seeming reluctance by commercial banks to reduce their lending rates despite efforts by the Central Bank of Kenya (CBK) to cut a key rate and improve liquidity in the market.
CfC Stanbic Bank Managing Director Mike du Toit said on Wednesday that although the Central Bank Rate (CBR) and the Cash Reserve Ratio (CRR) have been lowered, the costs banks incur in their businesses haven’t changed.
“We have over the last few years seen a significant increase in the cost of funds to the banking industry particularly on the shilling side. The truth of it is that until you see the cost of deposits starting to go down as an institution or an industry, it is going to be very difficult to see the cost of lending going down,” he said.
CBR, which is the rate at which commercial banks borrow from CBK, dropped to 7.75 percent in July and it was the fourth time that it was being lowered since December while the CRR, which is the amount of money that commercial banks are required to keep with the Central Bank, went down by 0.5 per cent to 4.5 percent.
Mr du Toit added that all indications are that the hard economic times are likely to last for at least one year and thus banks are just being cautious.
“Banks are saying, if we get an opportunity to reduce interest rates at this stage, will that be sustainable? It’s a matter of doing things sensibly and not being speculative and structuring the business around speculative opportunities,” he said.
His comments came a few days after the CBK Governor Prof Njuguna Ndung’u called on these financial institutions to lower these rates to enable the private sector to borrow cheaply.
Mr du Toit was however optimistic that measures by the CBK to inject liquidity in the market would eventually have the desired effects of cutting the rates.
“The Central Bank is very cognisant of what needs to be done and they are taking the appropriate measures. There is a possibility that they could reduce,” he said adding that the industry would welcome this move would relieve their customers of the financial distress.
Mr du Toit’s sentiments were shared by his colleague in the industry NIC MD James Macharia who argued that interest rates are dictated by supply and demand forces.
“There was a time, many years ago, when the Treasury Bill rates had gone down to one percent, but banks did not reduce rates in commensurate terms. If the rates asked for by depositors come down, indeed we shall reduce interest rates,” Mr Macharia added.
Mr du Toit spoke during a media presentation of a campaign they intend to run from Friday when he announced that CfC Stanbic would soon implement a core banking system which would enable it to integrate the operating platforms that were previously used by the Stanbic and CFC banks before their merger.
He explained that none of the two systems was able to handle the combined business as well as the growth that the bank anticipates in the future.
“We are aiming to try and implement before the end of this year. But the things that need to be fixed don’t have to stop us from going live. We have to take the two portfolios separately and put them onto the system,” he explained.
The execution of this project is estimated to cost the bank in excess of Sh1 billion.
He said the bank had learnt from the experiences of other institutions that have implemented the system the pitfalls to avoid in order to ensure its smooth running.
Head of Marketing and Communications Githae Kiereini explained that the promotion, which would run for three and a half months, would enable them to increase their brand’s visibility.
“We want to make the right connections with our customers, our staff and our different corporate markets. We are saying that we want to connect you at the right place, at the right time and with the right products and services. This is what we hope will differentiate us from the rest of the pack,” he added.
The pan-African campaign will run in 17 countries in the continent.