njuguna ndung ’ u : kenyan banking sector development over the last six years remarks by prof njuguna ndung ’ u, governor of the central bank of kenya, at the kenya bankers association 50th anniversary luncheon, nairobi, 7 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

for production and consumption decisions for exporters, importers, households and enterprises always adjust, whether the nominal exchange rate is fixed by a group of, hopefully enlightened, civil servants, or set by the markets. but when the exchange rate is allowed to float, relative price adjustment tends to be faster, and the impact of external shocks on quantities, that is to say on income and employment, tends to be smaller than when the nominal exchange rate is fixed. the second point to highlight is that even controlling the nominal exchange rate can be a challenge, and comes at the cost of either the ability to pursue an independent monetary policy or of free capital flows. countries cannot elude this constraint : nominal exchange rate management requires either severing linkages between the home economy and international capital markets, or shadowing some other country ’ s monetary policy. in sum, adopting a workable nominal exchange rate target ( be it explicit or hidden, for the level or the path ) imposes macroeconomic choices that fewer and fewer countries have been willing to make. it is somewhat heroic to assume that the state would be extremely competent at setting the nominal exchange rate. at least in the brazilian case, there is very little empirical evidence of that. under managed exchange rates brazil suffered recurrent balance of payments difficulties in the 1950s and 1960s, the 1980s debt crisis, which contributed to a dramatic deterioration in macroeconomic performance in the following years, and the slowdown and crisis of the 1990s, before its final collapse in january 1999. letting the market set the exchange rate does not mean remaining inactive when markets become dysfunctional. thus, the central bank has used its reserves, during the current period of global financial turmoil, to ensure that brazilian exporters and importers retain access to trade finance, to help brazilian corporates rollover their debts and to provide liquidity to the spot market. throughout this difficult period our focus has been on contributing to improve the way markets function, not to replace them. this approach is, and will remain, the cornerstone of our action in the foreign exchange market. there is no doubt that the world is currently experiencing an extremely difficult time. but it is also true that brazil is among the countries that are better prepared to cope with the effects of the global financial crisis – a fact pointed out by several organizations in many occasions, such as the last issue of the oecd composite leading indicators, a survey encompassing 35 countries. 1 brazilian fundamentals not only enable us to face the current environment