Kenya: Poor Relations Between Banks Blamed for Cash Shortages

Business Daily (Nairobi)

Muna Wahome

26 January 2012

The widening disconnect between local commercial banks and Kenyan subsidiaries of multinational lenders is worsening the distribution of cash in the financial system, Family Bank managing director Peter Munyiri said on Thursday.

Mr Munyiri said while the multinational lenders at times have enough liquidity, failure to open lines with local banks forced the latter to troop to the punitive Central Bank of Kenya (CBK) window for overnight loans.

“Global players do not open lines with local banks but with their own,” said Mr Munyiri in a presentation to MPs investigating last year’s sharp depreciation of the shilling.

CBK late last year imposed restrictions on access to the overnight window after accusing some un-named banks of using the loans to fuel speculative activities that were devaluing the shilling. Banks were cautioned against using the window more than two times a week, with a caveat that they would be charged higher rates and attract the regulator’s scrutiny of their activities.

At one point last November, the industry was experiencing a liquidity deficit of Sh50 billion but local banks had little choice beyond returning to the window and facing the sanctions.

“There was liquidity in the market but local banks still had to go to the window,” he said revealing that Family Bank used the window three times that week with a CBK audit finding nothing wrong with the move.

Mr Munyiri was addressing the Parliamentary Committee looking into the sharp depreciation of the shilling to an all-time-low of 107 units last year.

The currency has since stabilised at the mid-eighties range to the US dollar.

The rapid depreciation partly contributed to the double-digit inflation that is still lingering in the economy, besides causing major economic disruptions.

He said stability of the shilling would not be guaranteed unless the country put in place the relevant macro-economic measures to shield it from import dependency.

Munyiri says the poor balance of payments (BoP) position had consistently put pressure on the shilling, exposing it to seasonal volatility.

Last August, the Kenya BoP shrunk to $85 million from a $362 million surplus as the high international crude prices remained stubbornly high made worse by the weak shilling.

“We are not feeding our growing population which is the reason why we are using our scarce resources to import grain,” he said.

The banking industry has attracted focus as Central Bank accused some of the lenders of fueling speculative behaviour in the currency markets.

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