njuguna ndung ’ u : putting banking at the centre of the economy ’ s sustainable growth remarks by professor njuguna ndung ’ u, governor of the central bank of kenya, at the opening of the kba 3rd annual banking research conference, nairobi, 25 september 2014. * * * the chairman, kba governing council ; members of the kba governing council ; banks ’ chief executive officers ; distinguished participants ; ladies and gentlemen : it is my honour and pleasure to join you this morning at this very important conference that focuses on the role of the banking sector in the economy ’ s growth. it is therefore my singular pleasure to be invited to open the kba third annual banking research conference and to make some remarks at its commencement. first and foremost, i would like to commend the kba for its consistency in hosting the annual banking research conference. this is further evidence that the banking industry is keen on having its operations and strategic focus informed by analytical work. this being the third annual conference, the body of knowledge that the process has generated is without a doubt going to be beneficial to all stakeholders. research and its output is a “ public good ”. the broader benefits arising from knowledge cannot be restricted to those who have a direct interest in the research. research that improves the policy environment benefits all and indeed the economy at large. this year ’ s conference theme of “ putting banking at the centre of the economy ’ s sustainable growth ” is an example of this point. several papers focusing on finance and economic growth have confirmed the causal relationship. it is on that basis that i consider this conference ’ s theme on sustainability of this relationship to be inspiring, given that it provides an opportunity for deeper reflection taking us beyond the general finance – growth nexus. the kenyan economy has an ambitious real output growth target of at least 10 percent to enable the realization of the aspirations of vision 2030. the high and sustained growth targets will only be achieved through increased investment and increased productivity. the banking industry must intermediate and provide the funding required for the investment but even more important is long - term finance with attractive terms. ladies and gentlemen : the presentations lined up for this conference give me confidence that we are embarking on a conversation that will lead to the consolidation of the gains to the economy from the dynamism of the banking industry. let me make a quick reflection over the five areas around which the conference presentations focus ; • firstly, increasing support for agriculture is important and in the right

interest of determining how credit affects aggregate demand, a clear understanding of what motivates the private sector to seek bank credit enables the industry to react in a timely manner. and by identifying constraints, it can propose modalities for overcoming them. at the top in this agenda is to link it to investment. is our investment constrained by credit? we need to know more. ladies and gentlemen : the body of research work arising from the conference ’ s theme will obviously not be definitive ; but it will surely provide a good platform for reflection on the many ways through which the banking industry is readying itself towards further enhancing its role in the economy ’ s progress. there is also a possibility that ideas will emerge which have a quick response that can be put into practice in the short run ; furthermore, there is an opportunity to pick areas for further investigation. i am confident that the banking industry, that has remained stable on the back of the steady growth seen over the past decade, will continue to play an important role in supporting the various economic sectors through provision of credit. with an asset base of ksh. 2. 70 trillion as at the end of december 2013 compared to ksh. 2. 33 trillion as at the end of 2012, the industry is clearly maintaining the growth path. similarly, customer deposits grew by 14 percent in the period from ksh. 1. 71 trillion to ksh. 1. 94 trillion. the banking industry ’ s asset growth of 16 percent between 2012 and 2013 at a time when the economy ’ s real growth rate was less than 5 percent points to the possibility of the acceleration of the growth momentum emanating from finance. that growth will be accelerated once the overall cost of doing business that is being addressed, declines. this will ensure that the underlying asset quality accompanying the growth in the banking industry remains good. as a country, we are making strides in ensuring that financial inclusion is enhanced. the finaccess 2013 survey results revealed that kenya ’ s financial inclusion landscape has undergone considerable improvement. the proportion of the adult population using different bis central bankers ’ speeches forms of formal financial services was at 66. 7 percent in 2013 compared to 26. 4 percent in 2006. this is a notable achievement. the proportion of the adult population totally excluded from financial services has declined to 25. 3 percent in 2013 from 38. 4 percent in 2006. similarly, the proportion of kenyans accessing informal financial sources dropped from 35. 2 percent in 2006 to 7. 8 percent