In this interactive series, we invite our readers to send in questions to select public figures.
Answers will be published in the next print and online editions. This week, Kenya Bankers Association CEO Habil Olaka responds to your questions:
1. Why is the banking sector agitating for the removal of the cap on interest rates? Isn’t it selfish of banks to only think of themselves and not the customers?
Jeff Chepkwony, Sigor, Chepalungu
Kenya is a liberalised economy, which means that industries, from manufacturing to transportation to banking, are provided with an enabling environment to invest and grow as they serve the needs of their customers.
By providing products and services, industry players are required to abide by laws and regulations, and it is the role of the sector regulators to ensure that the players operate within the rules, which include the prices at which products are sold.
The introduction of arbitrary price controls in banking is as awkward as mandating all kiosks across the country to sell their products at pre-set ranges, despite what type of product they are selling; where they source their merchandise; or their operational costs.
In this kiosk scenario, the owner will then determine which products they can afford to sell and still make a profit.
This is the same experience we are facing in the banking industry.
2. I wrote to you some time back to raise a complaint about Smep Microfinance Bank, Nakuru branch, which had with no convincing reason, withheld my funds for seven days from June 5, 2017. On September 15, 2017, its CEO invited me to Nairobi to discuss the matter but on arriving there, he was nowhere to be seen.
What are you doing to ensure that bank customers in Kenya are not abused or shortchanged by financial institutions and what punitive measures are there?
Dan Murugu, Nakuru
Banking is a sensitive industry and as much as we do our best to serve customers, there are times that we fall short of their expectations.
To ensure that we continually enhance our practices and governance standards, Kenya Bankers Association (KBA) is developing a Code of Ethics and Self-Regulatory Framework.
This KBA Charter, which will introduce penalties to member banks, will direct the financial institutions on how to treat customers fairly.
Smep is however not a member of the association, therefore the charter would not apply to them unless they sign on.
3. In view of the Central Bank of Kenya’s move to cap interest rates, which drastically affected among others profitability and staffing, what measures have you put in place to encourage mergers so that we have a few but very strong and effective banks?
Dan Murugu, Nakuru
KBA members cover all sectors of the industry, and are all sizes.
We are proud of the diversity of our commercial, retail and microfinance banks.
It is a common misperception that bigger banks mean happier or safer clients. The bank consolidation debate has several considerations.
If the goal is to ensure bigger banks that can invest in major infrastructure projects, then there is justification for higher capital requirements.
However, we have seen that such moves come at the expense of financial inclusion and in some cases innovation.
If the goal is to make banks safer, then increasing the core capital will not guarantee this.
Therefore, the debate of bigger banks needs to consider the implications and at the same time the overall objective.
4. What is KBA doing to ensure the clients of the now defunct Imperial Bank get their money back?
The Kenya Deposit Insurance Corporation is the statutory body that ensures the protection of depositors.
KBA sits on the corporation’s board and, therefore, contributes to the process in this way.
5. What policy initiatives do you think need to be implemented to regain the trust and confidence of the international community in Kenya as a safe and attractive destination for investment?
Andrew Maranga Ratemo, Malindi
Over the years, Kenya has been a key destination for investors.
This is because of free market practices as well as the enabling environment that our government has promoted through political stability and sound development strategies.
The investments the government has made over the past 10 years have reinforced investor confidence that our economy is on the right track.
Moreover, our companies and banks have demonstrated our market’s potential.
Developments such as devolution have also been instrumental as they have opened up the country to more investment opportunities.
We must continue to promote such practices that attract investors.
6. We are witnessing a situation where Kenyan banks that loaned Kenya Airways are being asked to convert loans into equity. Some banks, I understand, have resisted the plan but they are being coerced to agree. What is your take on this?
Like any business, Kenya Airways has faced a challenge in its cash flow position and this resulted in its inability to meet its debt obligations.
We have seen rising non-performing loans (NPLs) and it is a concern for the industry.
Whereas the rising NPLs can be attributed to the difficult operating environment we have witnessed this past year, it can also be traced to specific sectors, for example those impacted by the drought; and yet still in other cases organisational challenges.
As always, banks would want to work with their clients to chart a way forward when such challenges arise.
7. It is now clear that the Central Bank of Kenya is on your side on the need to abolish the interest rates cap. How will you navigate the political part of this law?
Komen Moris, Eldoret
The Act came into force because some MPs felt that the industry was letting down its customers.
In this regard, the Act was well intentioned. However, the approach was wrong.
We will need to demonstrate to the legislature that banks will address their concerns.
In fact, KBA and Central Bank of Kenya already have introduced the Cost of Credit website (costofcredit.co.ke), as a solution to the challenge MPs raised that bank customers did not know the total cost associated with borrowing.
There was also a view from MPs that KBA had failed in keeping banks accountable, and to address this gap, we are working on a Code of Ethics and Self-Regulatory Framework.
8. Many banks under your association continue to offer poor services to their customers, for instance, ATM services frequently being down. Although customers may opt to move to other banks, the thought of one’s employer delaying salaries for months due to the shift makes one to give it a second thought.
Do you have the powers to caution such banks about these nature of complaints?
Komen Moris, Eldoret
It shouldn’t take months to move a scheme account between banks.
Moreover, during the transition, the original arrangement with an employer would ordinarily still be in place until the transfer is completed.
Regarding system downtimes of ATMs, banks offer numerous channels to their customers including mobile and internet banking.
We would expect that these channels would be available in the event that ATMs have an issue.
However, customers should feel empowered to move their business if they so wish.
9. Since the interest cap came into effect, banks have been reluctant to give personal loans and yet the same banks are lamenting over a drop in profitability.
Could you explain why commercial banks are doing this and isn’t it defeatist to later complain of falling profits?
Bade Okwach, Gem
Banks have numerous stakeholders, starting with their clients, several industry regulators, and their shareholders and investors.
The issue of bank profitability is one that would be addressed to bank shareholders and investors, such as pension funds and retail investors, who are expecting the bank to deliver to them increasing returns on their investment.
10. Not long ago, commercial banks launched Integrated Payment Services Ltd’s PesaLink as a reaction to M-Pesa eating away a sizeable chunk of the market share.
How much of a competition has M-Pesa been to the commercial banks’ core business?
How is PesaLink picking up and is it helping commercial banks reclaim the market share?
Joy Wandia, Nairobi
PesaLink is the banking industry’s first real-time, interbank money transfer platform.
We are very excited about this product, and in fact, it recently won a global award for the innovative approach we took.
PesaLink enables a customer to move as little as Sh100 to as much as Sh999,999 per transaction across bank accounts.
It complements the various other channels that are available to bank customers.
11. Are all the banks in the country and Saccos members of your association? Which institutions qualify to be members of your association?
Francis Njuguna, Kibichoi
We welcome all firms that provide banking services to join KBA.
Currently, our membership comprises all retail and commercial banks, and three microfinance banks, namely Faulu, KWFT and Rafiki Microfinance.
KBA offers its members various services, including access to the Automated Clearing House, which is owned by KBA and operated by the Central Bank of Kenya.
Associate members access other services and contribute to industry policy and development through the various KBA committees and special projects.
12. How will PesaLink attract enough customers to go around the complexity of systemic failure to integrate all major financial services?
Paul Theuri, Nairobi
The bulk of money that moves within the payments system is still within the banking sector, therefore, we believe that PesaLink can play a unique role in enhancing the efficiency of the national payments system.
Unlike a mobile wallet, PesaLink does not hold any cash.
It, therefore, does not pose a systemic risk in the manner you suggest.
13. There is a push by commercial banks and the CBK governor for Parliament to revert to the unregulated high interest rates regime. Don’t you think that will lead to unfairly high interest rates to the detriment of the consumers?
Joseph Chweya Obwoge, Murang’a
Even before the Banking Amendment Act came into force, loan interest rates were at 14 to 15 per cent, and deposit rates for fixed deposits were attractive.
We also saw banks spread over time to single digit levels.
We, therefore, believe that the market can deliver low loan rates if the operating environment is conducive.
KBA had been communicating the issues we saw with the Act well before the legislation was assented to by the President.
14. Why are banks reluctant to effect the reduced interest rate of 14 per cent as enacted in the law?
Customers are still repaying the same monthly deductions for loans that existed before the law came into effect, with the same loan repayment period.
Geoffrey Nyongesa, Eldoret
All banks regulated by CBK have effected the requirements of the Act.
In some cases, banks have taken a customer-centric approach and applied the law to existing loans as well as new loans.
Banks have responded to the Act in various ways: in some cases, banks have shortened the tenor of loans, which has increased the monthly repayments and this has created a difficult situation for some borrowers.
Banks have also opted to lend to the government instead of consumers or businesses, because they are seeking to preserve shareholder value.
15. Since the capping of the interest rates, we still read of banks reporting billions of shillings in profits as much as there have been decreases.
As long as you are not making a loss, you are in business.
Why are you obsessed with super profits in Kenya?
Jasper Murithi, Chogoria, Tharaka Nithi
Banks need to do a better job of telling their impact story, and communicating to customers such as yourself about the value they create in your life and in society overall.
On any given day, banks are supporting their customers to meet their aspirations; they are supporting students to seek higher education; they are funding SMEs and incubating start-ups; and they are investing billions of shillings in corporate social responsibility.
All this good work gets overlooked because of poor customer experiences.
As KBA, we are working with banks to enhance their customer service practices and we soon will be launching a commitment campaign where banks will be asked to take a pledge to better serve their customers.