Njuguna Ndung'u: Recent financial sector performance in Kenya
Remarks by Prof. Njuguna Ndung'u, Governor of the Central Bank of Kenya, on the occasion
of the 50th anniversary celebrations for NIC Bank Limited, Nairobi, 18 November 2009.
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Mr. James Ndegwa, Chairman of the Board of Directors of NIC Bank;
Mr. James Macharia, Group Managing Director and Chief Executive Officer of NIC
Bank;
Board Members here present;
Staff of NIC Bank; Distinguished Guests;
Ladies and Gentlemen:
I am delighted to be here this evening to join NIC Bank in celebrating fifty years of providing
financial services to Kenyans. Today indeed marks yet another landmark event on NIC's
successful path. I am therefore grateful for the invitation to join this joyous occasion. Let me
at this early juncture commend the Board, Management and Staff of NIC Bank for
successfully serving Kenyans for the last 50 years.
•
I am informed that NIC Bank (formerly National Industrial Credit Bank Limited) was
incorporated in Kenya on September 29, 1959 and started off as a non-bank
financial institution providing hire purchase and instalment facilities. The institution
became a public company in 1971 and was listed at the Nairobi Stock Exchange. In
its quest to meet the growing customer needs in terms of diverse banking
requirements, NIC Bank converted to a commercial bank and obtained its banking
licence in 1995. In November 1997, the bank merged with African Mercantile Bank
Limited (AmBank) which allowed the bank to enhance its position in the sector.
Since then, the bank has grown significantly.
•
Currently the bank has 15 branches countrywide having opened two branches in
Kisumu and Thika in the last one year while the Meru branch is scheduled to be
opened before the end of this year. The bank has also expanded regionally to
Tanzania after acquiring a subsidiary (Savings & Finance Commercial Bank) where
it now owns a majority stake.
•
The bank has been an innovative market leader in electronic payments solutions in
Kenya and has continued to enhance its service delivery to its customers through
technological innovations and available technological platforms. To this end, the
bank has introduced NIC on-line internet banking and NIC mobile phone transfer
services through the M-pesa services. I find this particular service very innovative
and integrated.
• It is also noteworthy that good Corporate Governance practices earned the bank
three prestigious awards in 2007/2008 and 2009. These include the Financial
Report Awards (FIRE) in 2007/2008 sponsored by CMA, NSE and ICPAK; the KRA
Commissioner General's Special Commendation Award and the KRA Most
Distinguished Taxpayer Award won in October 2009.
• Under corporate social responsibility, the bank has initiated programs that support
Environmental Conservation and Advancement of Education.
These are no mean achievements for NIC Bank.
Ladies and Gentlemen, allow me to mention some key indicators of the financial sector
performance in the last 12 months to September 2009.
•
Despite the various local and global turbulences experienced over the past one
year, the banking sector continues to exhibit resilience and has remained stable.
The impressive performance has been made possible by prudent risk management,
adherence to banking regulations supported by sound legal and regulatory reforms
that continue to be put in place in line with best practice.
•
The global financial crisis has pushed regulators like the Central Bank to think of
more regulation to prevent such a crisis in future. But the emerging wisdom is to
argue for better regulation. What is it?: It is a regulatory regime that can more readily
identify emerging vulnerabilities; Avoids regulatory arbitrage; A regime that can
properly price risks; and a regime that strengthens incentives for prudent behaviour.
•
The sector's assets increased by 11% to Ksh.1.31 trillion at the end of September
2009 as banks continued to expand their lending portfolio.
•
Deposits increased to Ksh.1 trillion in October 2009 due mainly to deposit
mobilization and expansion of branch networks by banks.
•
The sector recorded higher than required capital adequacy ratios. As at September
30, 2009, the Capital Adequacy Ratio stood at 20% and was above the statutory
minimum of 12%. This is an indicator that the sector has a substantial cushion
against periodic shocks.
•
The number of branches at the end of September 2009 stood at 918 an increase of
over 154 branches from the corresponding period in 2008.
Ladies and Gentlemen:
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Let me take this opportunity to reiterate that the Central Bank appreciates the
initiatives and innovations by the banking sector in coming up with new products and
is committed to the creation of an enabling regulatory environment. I would therefore
urge the banking sector to seek diversification of their products in light of the
dynamic banking environment to leverage on their growth and earnings.
•
From the regulators point of view, we have signed an MoU with the Capital Markets
Authority, the Insurance Regulatory Authority and the Retirement Benefits Authority
so that we can encourage information flow and limit regulatory arbitrage, but above
all build a strong financial sector and financial hub of the East African Community.
•
The strength of Kenyan banks is now being felt in the region, specifically within the
East African Community. To facilitate information sharing and supervisory
cooperation amongst the Central Banks, particularly for regional banking groups, the
five East African Central Banks signed a Memorandum of Understanding early this
year. This arrangement will serve to mitigate cross border risks that regional banking
groups may pose to the financial sectors of the East African countries.
•
Further, the Central Bank together with other stakeholders is working on a legal
framework that will enable banks to carry out branchless banking through the use of
third party agents such as SACCOs, microfinance institutions and retail outlets in
order to enable Kenyans to access financial services with ease. It is expected that
once the process is complete, the level of access of financial services by Kenyans
will widen in depth and breadth. We continue to join hands with other actors locally
and internationally to promote financial inclusion and access.
• In other developments, following the recommendation of a COMESA Team of
Experts, the Central Bank has been picked to host the COMESA Monetary Institute
(CMI) that will be based at the Kenya School of Monetary Studies. The institute will
generate the required knowledge for monetary policy in the COMESA region. It will
also work to harmonise regulation of financial markets in the region among other
issues like a common COMESA currency.
Let me take this opportunity to commend the banking industry on their achievements in
opening new economic frontiers and supporting Vision 2030. I challenge all banks not only to
invest more resources in technology, but to also expand their outreach into the rural areas in
the provision of loans. I do agree that the level of economic activity determines the level of
loans and credit advanced - but we are slowly evolving from the crisis so economic activity is
picking up. I am also aware that in such areas loans and advances are also plagued with
inappropriate definition of property rights and problems of enforcement of contracts. These
issues are being addressed through information capital and legal reforms. The Central Bank
will continue to partner with banks and other market players to ensure that the sector plays
its rightful role in Kenya's development agenda. The NIC from its 51st year is thus poised to
do better in a more incentivized environment.
With these very few remarks ladies and gentlemen, it is now my honour and pleasure to wish
you all a very pleasant evening and best wishes in your future endeavours as you celebrate
the Golden Jubilee of NIC Bank.
Thank you and God bless you all.