njuguna ndung ’ u : achievements, challenges and reform initiatives for the banking sector in kenya keynote address by professor njuguna ndung ’ u, governor of the central bank of kenya, at the kenya institute of bankers ’ annual dinner, nairobi, 20 november 2009. * * * chairman, kenya institute of bankers ; distinguished members of the council here present ; distinguished guests ; ladies and gentlemen : 1. i am pleased to join members of the banking fraternity for the kenya institute of bankers ( kib ) annual dinner. this event has over the years become the premier event for kenyan bankers to toast to their successes, ponder on the challenges in the year and more importantly reflect on opportunities in the coming year. i must therefore salute the chairman and council of the kenya institute of bankers for consistently organizing this forum over the years. i am honoured to be the one to deliver the keynote address at this important dinner. i will keep my remarks brief, as i do not want to stand between you and the festivities that follow tonight. 2. the year has been a challenging one not just for the banking sector but also for the economy at large. the global financial crisis that escalated in 2008 drove down our efforts through second and third round effects. however efforts by all players to stimulate the economy dampened the effects of the crisis in kenya. globally, efforts by governments have stemmed the crisis and the green shoots of recovery are beginning to sprout. 3. ladies and gentlemen : on the monetary policy front, the central bank conducted a procyclical monetary policy in the year with a view to stimulating private sector credit and economic growth. the monetary policy committee ( mpc ) lowered the central bank rate ( cbr ) from 8. 5 percent to 7. 75 percent and the cash reserve ratio ( crr ) from 6. 0 percent to 4. 5 percent between december 2008 and september 2009. these efforts managed to lower and stabilize short - term interest rates. the reduction of the cash reserve ratio induced banks to expand credit to the private sector and thus stimulate economic growth. analysis of the banking sector indicators shows that gross loans to most sectors increased in absolute terms. 4. but the cost of credit and interest rates spread remain high. the spread is a major challenge in the banking sector because it acts as an impediment to expansion of credit and development of financial intermediation and signals inefficiency in the sector. we need to come together, the market and the regulators

boosting broad based growth. on the financial sector front, the central bank in conjunction with the government will scale up reforms to enhance the sector ’ s competitiveness, efficiency, access and stability as well as making kenya a financial hub in the medium term. the banking sector is also expected to continue with its ’ excellent performance underpinned by regional expansion and lowered cost of business as the various reforms take root. looking ahead for monetary policy, the priority is to reverse inflation and inflationary expectations and exchange rate volatility to protect the economic growth base. tight monetary policy will be sustained until inflationary pressures have been reversed and the foreign exchange market stabilized. from a historical perspective, we have seen the same measures work and we still have confidence it will work in 2012. the bank will also continue with regular interactions with key stakeholders including market players to enhance the effectiveness of the transmission mechanism of monetary policy and other policy strategy actions. in closing, ladies and gentlemen, let me thank you all for the support and cooperation in developing the financial sector. i look forward to more fruitful collaboration and partnership going forward and in addressing any challenges facing the sector. lastly, let me end by wishing you all a happy holiday season and fruitful 2012. thank you. bis central bankers ’ speeches