NAIROBI, Kenya, Aug 10 – The Central Bank of Kenya (CBK) has appealed to banks to reduce their lending rates to enable the private sector access funds for development.
Governor Prof Njuguna Ndungu said on Monday that the government had played its part by reducing the Central Bank Rate (CBR) and the Cash Reserve Ratio (CRR) and the financial institutions should follow suit to ensure a vibrant private sector.
“It’s good and encouraging for banks to post profits but whereas that is good, it should be in tandem with the idea of reducing lending rates. If we don’t, we are going to kill the private sector and the real sector which is the goose that lays the golden egg,” he said.
His appeal came after revelations that banks have cut back on their lending as a way of protecting themselves against high rates of defaults following the hard economic times.
“If the economy is doing well, if the banking sector is doing well, then both parties benefit. However, if you maintain high lending rates, it means that any internal or external shock to the private sector may actually increase the rates of default,” he cautioned.
This is evident from the recent half year results that have been released by several banks which show that loans and advances have slightly declined.
The Governor however reiterated that the CBK has an open door policy where the sector was free to discuss ways to mitigate risks and in turn bring down transaction costs.
Low transaction costs, he argued, would have the multiplier effect of increasing deposit rates and eventually the national savings and investment rates, which the government hopes to increase by 32 and 35 percent respectively by 2030.
Statistics from the CBK however shows that the country could well be on the way to achieving this dream if no major interruptions are experienced.
For instance, the Governor said deposits went up to Sh954 billion in June 2009 from Sh871 billion recorded in June 2008 mainly due to efforts to mobilise deposits and expand branch networks by banks.
He observed that the sector has performed well despite the turbulence that had been experienced in the economy in the past one year.
Another indicator, he pointed at to support his argument was statistics that the industry’s assets increased by 15 percent to Sh1.26 trillion in June 2009 from Sh1.09 trillion recorded in the corresponding period last year.
“The number of branches at the end of June 2009 stood at 930 an increase of 158 branches from the same period last year,” he added.
The Governor spoke during the launch of the Southern Credit Banking Corporation MasterCard Debit Card which the bank’s Chairman Jeffrey Bamford said would allow the bank’s customers to transact business at more outlets.
“It will be accepted in more than 200 outlets countrywide and 28.5 million outlets worldwide,” the chairman said of the card which will also be acceptable in retail chains.
Mr Bamford, the launch was part of the strategy to provide services and innovation products to its clientele which has been expanded to include Small and Medium Enterprises, the youth and women.
The service is now seen as an expansion of the country’s card market segment which is currently underserved.