Expect more mergers in the banking sector, says Njoroge

Wednesday, September 25th, 2019 00:00 |
East African Community (EAC) Principal Secretary Margaret Mwakima, Kenneth Bagamuhunda, Director General of Customs and Trade at the EAC (right) and East African Business Council Chief Executive Officer Peter Mathuki brief the press ahead of high-level EAC conference on trade integration scheduled to take place in Nairobi from today. PD/ Photo/Timothy Njenga

Nairobi, Tuesday

 The banking sector should expect more consolidation as relatively weaker lenders are acquired by stronger counterparts, Central Bank of Kenya (CBK) Governor Patrick Njoroge has said.

“We are not done yet,” he told a news conference in Nairobi yesterday, adding that the market-driven consolidation was working. 

There has been significant consolidation among local banks since two mid-sized lenders were closed due to liquidity problems, with the most recent major deal being the acquisition of National Bank of Kenya by KCB Group.

Earlier, Competition Authority of Kenya approved the proposed merger between Commercial Bank of Africa Ltd (CBA) and NIC Group following the approval by shareholders of both entities.

Njoroge also disclosed that CBK would start loosening its monetary policy if the government sustains efforts to cut a gaping budget deficit.

The finance ministry has set a fiscal deficit of 5.9 per cent for this fiscal year (July 2019-June 2020), which will be lower than the actual deficit of 7.6 per cent in the 2018/19 financial year, he told the news conference.

“If this continues there will be scope for monetary accommodation, so a sort of loosening of monetary policy as fiscal policy tightens,” he said.

The government has been criticised for increasing borrowing since 2013. Total public debt stands at 55 per cent of gross domestic product (GDP), up from 42 per cent when he took over.

The envisaged rebalancing of fiscal and monetary policy would stabilise the management of the economy and give authorities room to manoeuvre in case of unforeseen shocks in the future, Njoroge said.

“Fiscal (Treasury) had its foot flat out on the accelerator and we as monetary authorities, in order for the thing not to crash, we had our foot firmly on the brake,” he said. “The car obviously was can’t continue like that for too long.”

Lending rate

Policy makers held the benchmark lending rate at 9 per cent on Monday, saying inflation was well anchored within the government’s preferred band.

The oil price spike caused by an attack earlier this month on Saudi Arabia’s largest oil processing facility would have little impact on inflation, the governor said.

“It won’t have a significant impact on inflation,” he said. The central bank still expected the economy to grow by 6 per cent this year, Njoroge said, citing good performance in the tourism sector, a top hard currency earner and employer for Kenya.

The bank was set to review that growth forecast when the statistics office issues growth numbers for the second quarter at the end of this month, he added.

He warned, however, that there were significant risks, including the US-China trade war and the ensuing softening of the global economy.

“The external sector is worsening dramatically,” he said.

“On top of that there is uncertainty about the policy response to the things that are happening in the global environment.”             – REUTERS

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