The Central Bank of Kenya Governor, Dr Patrick Njoroge has affirmed that there is enough liquidity in the banking sector even as the sector continues to go through the wave of uncertainty, after three banks Chase Bank, Imperial Bank and Dubai Bank collapsed in the last year.
Speaking at a press briefing, the governor placed the liquidity levels at 41.6 per cent in May compared to 40.5 per cent in April which signalled a stable sector. He also added that distribution of liquidity was also in favour of the sector. “Distribution of deposits outflow and increases in various institutions, in midsized banks, liquidity continues to grow and in the large banks it has actually shrank in the month of June and July,” he said.
Gross non-performing loans to gross loans in Kenyan commercial banks has reached alarming levels in last 12 months jumping to 8.5 per cent in May compared to 5.7 per cent in the same period last year. The Central Bank Chief put the rates at 8.4 per cent in June.
On Monday, The Monetary Policy Committee dropped the Kenya Bank’s Reference Rate by almost 1 per cent to 8.90 per cent from 9.87 per cent putting further pressure on commercial banks to lower lending rates currently at an average of 20 per cent. The reference rate was introduced by the Central Bank of Kenya to enable consumers to compare the pricing of loan products in a bid to increase transparency in the sector.
The committee also held the Central Bank rate at 10.5 per cent citing the anticipated rise in inflation due to additional charge on fuel tax which will insert pressures on consumer prices. Inflation rose to 5.8 per cent in June compared to 5 per cent in May. The governor attributed this rise to the increase in food inflation from 6.8 per cent to 8.6 per cent in June, while the introduction of new taxes also put pressure on inflation “The excise taxes that were applied on 1st December impacted by 3 per cent. There were other measures that were introduced in July finance bill that impacted by less than 0.1 percentage points.”
The Central Bank has come under pressure from stakeholders and government over its ability to oversee activities of commercial banks in reference to governance and liquidity management. The governor confirmed that supervision needed to be enhanced adding that measures have been taken towards improving skilled staff of which 15 more have been recruited, enhancing IT systems of which 100 per cent of loans were being monitored technologically and encouraging transparent transactions by lenders.