CENTRAL BANK OF KENYA
Address by
PROF. NJUGUNA NDUNG’U
GOVERNOR
BANKING AND FINANCE CONFERENCE
HILTON HOTEL, NAIROBI
August 18th, 2008
Chief Executives of Commercial Banks here present;
John Wanyela, Executive Director, Kenya Bankers Association;

Representatives of the East African Business Council and East
African Development Bank;
Conference Facilitators;
Distinguished Guests;
Ladies and Gentlemen:
I am delighted to be here this morning and let me hasten to thank the
organisers of the conference for the invite. I am informed that the overarching
theme of the conference is mainstreaming banking and finance issues in the
integration process of the East African Community. This is indeed a subject
that is near and dear, not just to the Central Bank of Kenya, but also to our
counterparts in the region. I was therefore pleased to be advised that similar
forums have already been held in Uganda, Rwanda and Tanzania. I am further
informed that a regional forum that will bring together all the East African key
banking and finance players is scheduled for Arusha in the course of next
month.
The role of banking and finance in regional integration cannot be
overemphasised. At the most basic level, banks facilitate trade and flow of
funds and investments across the region. However, with the global trends
towards regional integration, banks will increasingly play a pivotal role in
providing capital that will make this vision come true. I have in mind the
move towards private-public partnerships in the financing and
implementation of key regional infrastructure projects. We would like to see
our banks playing an increased role in such initiatives. Commercial banks
must therefore facilitate long term financing projects.
It would be apt at this juncture to commend the Kenyan banking sector that is
well represented here today for expanding its’ footprint across the East African
region. Regional banking is a relatively ‘virgin’ service that should be
encouraged. Your institutions will, however, require to be well capitalised to
take advantage of emerging regional opportunities. In this regard, raising
capitalization in the commercial banks will facilitate flexibility and innovations
in their market niche.
I would also like to commend Kenyan banks and the Kenya Bankers
Association for their efforts in the recent Safaricom IPO. All the banks came
out of it unscathed and this self discipline and focus is commendable. Of
course, the Central Bank had to walk the path with them.
Allow me to now turn to the experiences of the regional central banks in the
East African Community (EAC) integration agenda. As you may be aware, the

EAC has mandated the Monetary Affairs Committee (MAC) with the key
objective of implementing a monetary union which is a precursor to the full
integration of the East African Community. MAC is comprised of the
Governors of the five East African central banks. Technical sub-committees of
MAC focus on the thematic areas of macroeconomic issues of convergence,
bank supervision, payments systems, financial markets, information
technology and capacity building. These areas are indeed the building blocks
of the envisaged monetary union.
Of particular interest to the banking sector is the harmonisation of regulation
and supervision. This is of key importance to the increasingly regional Kenyan
banking sector in view of the costs associated with compliance to varying
regulatory regimes. Therefore, the harmonization of banking supervision and
regulation continues to be at the top of the MAC radar screen.
What has been our score card in this area? Overall, MAC has served as a
useful forum to share experiences on topical bank supervision and regulation
issues and forge a common way forward. Indeed harmony has been achieved
in key regulatory issues such as operational independence of central banks,
publication/disclosure of financial statements by commercial banks and
business continuity management.
We continue to share supervisory policies and procedures through joint
arrangements. The East African central banks are at the moment in active
discussions on a draft regional Memorandum of Understanding (MOU). The
MOU, which we target to finalise by the end of the year, will enhance
information sharing amongst the partner central banks. As you will appreciate,
this initiative will facilitate the consolidated supervision of our regional banks.
There are however challenges, some of which are legislative in nature as well
as the microstructure of our financial system.
Going forward, MAC will continue, relentlessly, to work towards harmonizing
the East African banking supervision and regulation regimes. We are acutely
aware that a harmonized regulatory regime will reduce compliance cost and
spur regional expansion of banks. It is not an easy road, but one that we must
tread. Our vision will be ultimately achieved when the partner central banks
can issue ‘’East African Banking Licences’’ valid in all the partner states.
Ladies and Gentlemen: It is my expectation that over the course of this
morning, you shall as market players:-

• Clearly identify ways in which the banking sector can facilitate regional
integration.
• Brainstorm on regulatory and other barriers to regional integration from a
banking and finance perspective.
• Make clear, time bound and practical recommendations on how the
barriers identified can be overcome.
We look forward to receiving the report of your proceedings this morning and
remain open to further consultations on this topical agenda.
It is now my pleasant duty and honour to declare the Banking and
Finance Conference officially open. I wish you fruitful
deliberations in this Conference.