CENTRAL BANK OF KENYA
Remarks
by
PROF. NJUGUNA NDUNG’U
GOVERNOR
KENYA BANKERS ASSOCIATION 50TH ANNIVERSARY LUNCHEON
Tuesday 7th August, 2012

Honourable Njeru Githae, Minister for Finance of the Republic of Kenya;
Dr. Donald Kaberuka, President of the African Development Bank;
Mr. Richard Etemesi, Chairman, Kenya Bankers Association;
Mr. Habil Olaka, Chief Executive Officer, Kenya Bankers Association;
Members of the KBA Governing Council;
Distinguished Guests;
Ladies and Gentlemen:
It is a great pleasure for me to join you on this auspicious day to celebrate the
Golden Jubilee of the Kenya Bankers Association (KBA). Allow me at the onset to
thank the Honourable Njeru Githae, Kenya’s Minister for Finance and Dr. Donald
Kaberuka, President of the African Development Bank for gracing this occasion.
Their presence demonstrates the importance they attach to the role that the Kenyan
banking sector plays in the economy. Let me also congratulate the members and
management of KBA on turning 50.
Ladies and Gentlemen: The choice of the theme for this luncheon, “Banking’s
Role in Development, Recognizing the Achievement while Catalyzing Greater
Private-Public Sector Collaboration” depicts the path through which the Kenyan
banking sector has scaled the heights over the last six years. The current resilience of
our banking sector is the outcome of partnership between the regulator and the
regulated. This is not a common occurrence in most sectors, but I can confidently tell
you that CBK and the Kenya Bankers Association (KBA) have successfully
demonstrated they are agents of development in the financial market.
Ladies and Gentlemen: The tremendous growth in the Kenyan banking sector in
the midst of financial turmoil in the developed markets has been put to question by
parties who may not be aware of the past efforts towards a more sound and resilient
sector. Allow me to mention just a few initiatives that CBK and KBA undertook
jointly over the last five years to complete the financial infrastructure set up in the
economy and whose outcome is reflected by the unrivalled performance in the
region.

1. Roll out of Credit Information Sharing: Kenya witnessed several
unsuccessful efforts by the Kenyan banking sector to introduce credit information
sharing (CIS) in Kenya since 2003. However, CIS became a reality in 2008 when
a regulatory framework was developed jointly by CBK and KBA. As banks
benefit from enhanced credit risk management, Kenyan borrowers have started
enjoying lower lending rates but more needs to be done by banks.
2. Roll out of Agent Banking: On realisation that it is not economical to
establish brick and mortar branches across the country, the Banking Act was
amended to allow banks to provide banking services through third parties
(agents). To operationalise this amendment, CBK and KBA came together to lay
the ground work. This included benchmarking with best practices in other
countries and developing appropriate guidelines. Following consultative forums
with the market players, the agent banking model was successfully rolled out in
May 2010.
Since the rollout 11 banks have been granted approval to rollout their agency
networks and 9 of them have engaged more than 12,000 agents spread across
the country. The aim of agency banking is to increase outreach of banks to
enable them satisfy the financial needs of the under-banked and unbanked
Kenyan populace as well as leveraging on additional cost effective distribution
channels to offer financial services. So far agents of banks have facilitated more
than 21 million transactions valued at more than Ksh.105 billion (USD1.2 billion)
as at June 2012.
3. The Cost of Collateral and Feasible Solutions: Banks have cited cost of
collateral as one of the main contributing factors to the prevailing high interest
rates. To demystify this, CBK, KBA and Financial Sector Deepening (FSD) Kenya
undertook a study on Cost of Collateral in 2008. The study confirmed that the
high costs of collateral creation, perfection and enforcement accounted for a
sizeable portion of interest rates charged by banks. The findings of the study were
shared with the various relevant arms of Government for their consideration. We
appreciate the ongoing reforms in the Ministry of Lands and we expect the same
to be replicated in the other government agencies.

4. Establishment of Currency Centres: The high cost of transporting cash to
the nearest CBK branch coupled with increasing robbery cases made it
imperative for a solution to be established. Through CBK and KBA partnership,
three currency centres in Nyeri, Nakuru and Meru were established in phase one
of the project. Savings realised by banks in terms of cash-in-transit expenses as
well as insurance premiums are expected to trickle to the economy as banks
adjust their bank charges accordingly.
5. Clearing and Settlement Process: Effective and targeting real time for
electronic transfers and T+1 for cheque clearing
Distinguished Guests, Ladies and Gentlemen: These are just a few of the joint
initiatives in the banking sector – they have lowered the cost of doing business in the
sector. They have allowed the unbanked to be banked – we now have close to 15
million deposit accounts from around 2.5 million in 2007. Going forward, CBK and
KBA will continue to collaborate in strengthening the banking sector’s legal and
regulatory framework as well as enhancing the credit information sharing
mechanism.
Ladies and Gentlemen: I once again applaud Kenya Bankers Association for the
cherished partnership we have had. I urge them to remain committed to our mutual
cause for the benefit of our economy. I assure you of CBK’s commitment.
With these few remarks Ladies and Gentlemen, it is now my pleasure to welcome
Honourable Njeru Githae, Minister for Finance to make his remarks.
Thank you