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Who was borrowing?

BANKING SECTOR EXPLOITING KENYANS
by Billow Kerrow

President Uhuru’s signing of the bill capping interest rates charged by banks will be his signature legacy, better than the SGR. Its a momentous decision that will change the fortunes of many Kenyans who have suffered under the choking exploitation of the banks. All the talk that his action will hurt poor Kenyans more is hogwash, and a desperate move by our bankers to intimidate Kenyans. Banks are licensed by the Govt as a service provider, and must appreciate that they are bound by the interests of Kenyans and not their greed. The President should now warn CBK and Treasury to operationalize it expeditiously, and enforce it. He should tell the banks that they must work within the business environment created by Govt, within the economic policies set by it and work in the best interest of Kenyans. Here are the reasons I agree with the President:-
Kenya is a goldmine for banks. In 2013, three of our banks earned the highest return on capital in the world! Equity at 55%, NBK at 53% & KCB at 40%. The average return in Africa was 24% which was double that of the rest of the world. Europe’s was only 4%! Folks, we work just for banks!
Our banks made a staggering shs 135 billion in profits last year, whilst most of our business made huge losses, including most of the blue chip companies listed on NSE. In 2014, they made shs 140 billion! Yet, 60% of their profits is from interest on loans & advances, at least sh 80 billion!
We have the highest number of banks per head in Africa….it must be the attraction of the huge returns! 44 commercial banks; 12 Microfinance institutions; & 180 deposit-taking SACCOs.
The total non-performing loans (NPLs) to the total loans and advances ratio in Kenya is 6.3%, fairly low compared to many countries in Africa; only South Africa & Nigeria have lower rates. Hence, it cannot be an excuse for the high interest rates. The doubtful loans, or NPLs as they call it in banks, at March 2016 was shs 170 billion against gross bank loans of sh 2.2 trillion! in fact, the so-called risk sector such as personal/household loans is only sh 32 billion.
The balance sheet value of the 44 commercial banks last year was sh 3.6 trillion; the shareholder funds in all these banks was only sh 543 billion, most of it retained profit! Are Kenyans helping? Our deposits were sh 2.6 trillion, far more than their advances. Currently, interest on deposits represents only 36% of their total expenses….they nearly enjoy free money!
The bill proposes higher deposit rates, at 70% of the lending rate, in order to reduce the gap between the rate they lend at, and the rate they take deposits. Currently, you deposit your money at around 5% and borrow at 18%. That gap will now reduce significantly. This law will encourage more Kenyans to save and deposit their money in commercial banks, thereby increasing our national savings ratio, and expanding their total deposits, more advances and better liquidity. Our savings ratio at 11% is one of the lowest in Africa, worse than Uganda & Tanzania and most low income countries that average well above 20%.
Out of the sh 2.2 trillion advances, sh 332 billion is to the SMEs. If this sector is risky as the banks allege, they would not have given such a huge amount of loans. Most of these advances are performing well. After all, the loans to SMEs represent only 23%. There is no such thing as a risky sector; banks must assess risks for each customer and not punish Kenyans indiscriminately. Global rejection of unsecured loans is punitive, and primitive. CBK must protect customers from such unfair, unethical practices designed to hit back at Kenyans.
Over 76 countries cap interest rates, including Europe, US, Africa and Asia, including 24 countries in Sub-Saharan Africa. Nothing strange about such a law; lets move on!. Meanwhile, MPs should delve deeper to direct flow of capital to productive sectors through regulation too!

very good analysis!