Cut pub­lic debt ap­petite to spur credit to SMEs

The Star (Kenya) - - News -

Money is now cheaper, so peo­ple can buy more of it: Kenya Com­mer­cial Bank CEO Joshua Oi­gara was quoted in the me­dia say­ing the bank’s per­sonal loans had risen from Sh1 bil­lion a month to more than Sh3 bil­lion. That’s just what the MPs had in­tended with the in­ter­est rate cap, no? It’s worth tak­ing a closer look, though: As he also points out, most of the ad­di­tional lend­ing is top-ups of ex­ist­ing loans – with lower in­ter­est rate pay­ments, clients can af­ford to bor­row larger sums. For the bank, top-ups work be­cause those are trusted clients al­ready.

It’s quite likely that the sud­den surge in per­sonal loans won’t con­tinue – KCB ex­pect this trend to last un­til early 2017. Then ev­ery­one who could and wanted to bor­row more will be sorted out. So what next? Banks look like they have fallen in line with the act rel­a­tively meekly. But no­body wants to be seen as a law­breaker, and I guess they also re­alised how much ev­ery­one hated their fat-cat be­hav­iour and wasn’t in­ter­ested in hear­ing any more whin­ing.

Nat­u­rally they will seek ways to re­place the in­come they have lost. And de­spite CBK warn­ings, there are signs that they have be­gun to do so – con­vert sav­ings ac­counts into cur­rent ac­counts (no min­i­mum in­ter­est there), in­tro­duced a few new fees and so on. If you can lend to gov­ern­ment (in large vol­umes, prac­ti­cally risk free) at the same rate as you can to an in­di­vid­ual (small amount, pos­si­bly con­sid­er­able risk), what would you do? If the Kenyan gov­ern­ment wants to make a proper go of this, it would have to sig­nif­i­cantly re­duce its lo­cal bor­row­ing.

And I won­der how se­ri­ous the gov­ern­ment was about this in the end. In the short term, Pres­i­dent Uhuru Keny­atta was ob­vi­ously very se­ri­ous about one as­pect, the po­lit­i­cal ben­e­fits. The in­ter­est rate cap united MPs from all sides – only bills on MPs’ re­mu­ner­a­tion and tax ex­emp­tions get passed with the same warp speed and una­nim­ity. Who wants to pick that bat­tle right be­fore an elec­tion if you can just take the good press, leave the banks to in­tro­spect and cut some fat – and then re­visit the is­sue in a year’s time?

I sus­pect this will hap­pen. A num­ber of is­sues in how the leg­is­la­tion was writ­ten would po­ten­tially open it up to a chal­lenge, for ex­am­ple the lack of clar­ity what the ref­er­ence rate is, the confusion be­tween per cent and per­cent­age points (which is re­ally ba­sic, and al­ways ir­ri­tates me when the pa­pers get it wrong). In the mean­time, size has re­ally be­gun to mat­ter, so could this also give a bit more mo­men­tum to bank­ing sec­tor con­sol­i­da­tion?

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