njuguna ndung ’ u : costs of collateral in kenya remarks by prof njuguna ndung ’ u, governor of the central bank of kenya, at the launch of the study report on “ costs of collateral in kenya ”, nairobi, 24 march 2010. * * * hon. uhuru kenyatta, deputy prime minister and minister for finance ; permanent secretaries, here present ; mr. martin oduor otieno, chairman, kenya bankers association ; mr. john wanyela, chief executive officer, kenya bankers association ; mr. david ferrand, director, financial sector deepening trust kenya ; distinguished guests ; ladies and gentlemen : it is with great pleasure that we congregate here this morning to chart the way forward on another avenue of enhancing efficiency in our banking system. this is through changes in the collateral technology in use. but before i make my remarks, allow me to thank the hon. deputy prime minister and minister for finance for agreeing to grace this occasion and deliver a keynote address. also, allow me to thank kba and fsd for their tireless effort to deepen the financial sector. yesterday, we held our monetary policy committee meeting in mombasa cbk branch. the first review was a survey on what sustains high interest rates – the response from the market showed two factors ; cost of credit and credit risk sustains high interest rates. but what is behind cost of credit and credit risk – perhaps the collateral technology in use. the cost of collateral is being addressed today by this study. ladies and gentlemen : kenyan banks have persistently cited cost of collateral as contributing a significant portion of premium factored in the interest rates they charge. to demystify the assertion, central bank of kenya ( cbk ) and kenya bankers association ( kba ) in conjunction with financial sector deepening trust ( fsd ) kenya commissioned a study to review the kenyan collateral process with a view to determining the costs associated with each step in the process. the consultants were also required to put forward succinct recommendations based on their findings. evidence seems to show that the three steps of collateral process in kenya ; that is : creation, perfection and enforcement, entail enormous costs and time. ladies and gentlemen : the report has brought forward several recommendations. they will be implemented and will result in both cost and time reduction. the implementation of the recommendations touches on several government agencies, most of which are represented here today. i believe your presence in this

package, the korean economy is expected to move onto a moderate recovery track in the near future, though there may be some impact from the damage inflicted by the recent typhoon. the problems we confront, though, are by no means simple. above all else, we have the issue of the high social costs exemplified by the recent confrontation between labor unions and employers and the prevalence of actions placing the interests of vested interest groups above those of society as a whole. the timely resolution of this conundrum is crucial to the long - term health and viability of the country ’ s economy. we also have to tackle the potential threats to financial stability including the mounting number of koreans on credit blacklists, swelling overdue loans in the household sector and the frail management status of certain financial institutions. one of the characteristics of korean society inherited from a history of adversity is that when people share the perception that the country faces a crisis, they unite as one in enduring whatever hardship it takes to overcome it. this was the wellspring from which korea drew the strength to surmount the currency crisis. and helped by these social dynamics, koreans will, i am confident, deal skillfully with the present challenges. there are already signs that a social consensus has been reached on the need to overcome the problems that i have mentioned for the good of the korean economy. the government is now also directing its attention toward curing the evil of spiralling social costs. 2. monetary policy in the light of the shifting economic environment, the bank of korea has conducted monetary policy so as to support the economic recovery while smoothing out the internal and external disequilibria. early this year, because of the current account moving into the red and the upward price pressures brought about by the steep run - up of international oil prices, we had difficulties in making use of the interest rate policy lever to deal with the downturn in economic activities. we therefore left our target rate, the overnight call rate, on hold. but the current account shifted into surplus and price movements settled down once international oil prices showed downward stability following the early end of the war in iraq. for this year as a whole, too, our forecasts pointed to core inflation being held stable within its target range at the 3 percent level and to the current account maintaining its underlying surplus trend since the 1997 currency crisis. under these circumstances, the bank of korea moved to revive business and consumer confidence. in may and again in july, it reduced its overnight call rate