Why Kenya’s central bank governor believes the finance bill will emasculate the bank

PUBLISHED: Wed, 30 May 2018 07:51:16 GMT

NAIROBI, May 29 (Reuters) – Kenya’s central bank will be emasculated if a draft bill that aims to regulate the conduct of financial institutions becomes law, bank Governor Patrick Njoroge said on Tuesday.

The Financial Markets Conduct bill published last week by the finance ministry proposes to create a regulator in addition to the central bank to deal with the conduct of lenders.

The ministry says the bill aims to protect consumers from lenders who charge high rates for services provided over mobile phones. It is open for review and comment by the public and industry and will be presented to parliament next month.

Critics say a proliferation of lenders using mobile phone financial technology to extend credit to people even if they do not have bank accounts is saddling borrowers with high interest rates and leaving regulators scrambling to keep up.

The government caps the rate banks can charge their customers for loans at 4 percentage points above the central bank rate, saying they were charging very high rates. But lenders who offer mobile phone services are exempt from that rule because they are not covered by the banking act.

“The bill emasculates the central bank (which) … is under attack,” Njoroge told a news conference. It relegates the banking act and leaves bank customers at the mercy of lenders by curbing the central bank’s ability to regulate fees and charges, he said.

It also takes away the central bank’s ability to deal with “reckless lending”, limits its power to issue prudential guidelines and place banks under receivership, he said.

Finance ministry officials were not immediately available for a comment.

The bill does not propose repealing the government’s cap on commercial lending rates, which local banks and the International Monetary Fund blame for sluggish growth in private-sector credit.

The central bank faced criticism in 2011 after inflation rose to nearly 20 percent and the shilling weakened to record lows against the dollar but it has won praise for maintaining macro-economic stability since then.

Njoroge, who was appointed in June 2015 from a senior post at the International Monetary Fund in Washington, was also credited with a robust response to the collapse of three financial institutions soon after he took office.

He said he had been warned there were some unnamed parties that were keen on creating mischief and frustrating the central bank’s fight to keep its independence, but he said he was ready.

“I have been warned in various ways about certain parties that lie in wait, poised for mischief but our actions have consequences, after all this is Kenya, we are ready for that,” he said. “That menace shall find us at our post and unafraid.”

He did not give details about who was making the threats.

Njoroge also said lower fiscal deficit targets set by authorities would be challenging to meet, but if they were achieved it would create room for monetary easing. (Editing by Matthew Mpoke Bigg)

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