No rush in banks as old Sh1,000 note exits stage
Low-key transactions marked the last day for exchanging the old Sh1,000 banknotes across the country yesterday, raising questions whether the Central Bank (CBK) had met its target in the currency mop-up.
Bank managers who spoke to Business Hub said they had expected heightened activity as customers exchanged their old notes for new ones, but this was not the case.
“It would seem that people were well prepared and nobody wanted to be caught up in the last-minute rush. I expected long queues but it’s been like this (no queues) much of the day,” said a Commercial Bank of Kenya manager who cannot not be quoted as he is not authorised to speak to the media.
Kenya Bankers Association chief executive Habil Olaka said there wasn’t heightened activity in the build-up to the deadline, hence he did not expect queues on the last day.
“I wasn’t particularly surprised given what has been happening. There were no queues to the build- up, I guess due to the sustained sensitisation and alerts,” he said.
Close of business
Out of the targeted 217.6 million pieces of old notes reported to have been in circulation before June 1, CBK is said to have received at least 100 million pieces by end of August, which means the regulator expected to mop up 117.6 million pieces by close of business yesterday.
For a country known for last-minute reaction to deadlines, the low-key transactions came as a surprise to economic observers. It also raised questions whether the CBK would net the 117.6 million pieces worth about Sh118 billion said to have been in circulation at the beginning of September.
In a spot-check across the country, Business Hub found normal queues in most banking halls in Nairobi, Eldoret, Kisii, Busia, Narok, Machakos, Thika, Nyeri, Nairobi, Mombasa and Kitengela, with only a few people coming in to exchange their money at the end of the grace period. A visit to three banks in Nairobi revealed nothing unusual.
“I have been checking the banking hall to see whether there are long queues but I have seen none.
In fact, today looks like a holiday to us; perhaps people kept away because of the expected winding queues,”said an Equity Bank employee.
At Co-operative Bank, Digo Road branch in Mombasa, an official who sought anonymity because he’s not authorised to speak on behalf of the bank, said that since the notice was issued, the bank had recorded an average of between Sh50,000 and Sh100,000 being returned daily.
“We have had enough supply of the new notes and there is nothing out of the ordinary,” said the official.
KCB Kisii branch manager James Maganda, said they expected more people to return the old notes but only a few turned up.
The manager said majority of those who have been exchanging the notes are elderly people, adding that he had instructed staff across the county to help such customers get the new notes.
“Just a few people turned up seeking to replace the old notes. We are closing at 4pm and I expect those who have not done so to show up before the deadline,” Maganda said.
Dr Samwel Nyandemo, an economics lecturer at the University of Nairobi, said that going by the figures presented by CBK and the low-key transactions in banks yesterday, the CBK target in the mop up may not have been met.
“It could mean the people they were targeting were smarter and could have used foreign currency to hide their money,” he said.
“Njoroge will not be happy. He knows how much money he released to the economy,” the economist said.
The demonetisation process came on the backdrop of police raids, with illicit cash being traced to a couple of homes. CBK said the process was partly meant to deal with people who handled illicit cash.
“There has always been a misconception that there is illicit money held in houses and not flowing in the economy. That does not mean that there is no illicit flow of money is there,” Sahil SR Shah—Project Lead—Kenya Business Guide
He said from the initial announcement and subsequent statements, CBK had failed to outline a yardstick of failure or success. “How does the government plan to measure the effectiveness of this policy?” Sahil posed.
Hezbourne Ongelle, an economist with Breinscope Consultancy said: “CBK knows the amount of money is circulation and what is being held. If, say, Sh117 million pieces of Sh1,000 notes has not been returned, it implies that those who hold it fear being caught due to the stringent measures put in place.”
Corporate Finance and Advisory manager at ABC Capital Johnson Nderi said if the money is not returned at all, it is possible the money could have been destroyed or was kept outside the country by individuals who were unable to return it for an exchange due to the stringent rules. John Kirimi, director of Sterling Capital, said ignorance and even death may have contributed to some amount not being returned.
Farmers in Narok county had stopped accepting cash for wheat purchases after the CBK governor raised alarm over an upsurge of transactions using the old notes in the area. Narok brokers chairman Moses ole Kipes said farmers had reverted to receiving payment through bank deposits or inter-bank transfers.
“Most large-scale farmers are aware of the deadline and no one wants to be duped. Small-scale farmers have been receiving cash payments for their produce but the trend has changed,” said Ole Kipes. Reporting by Fred Aminga, Zachary Ochuodho, Lewis Njoka, Harrison Kivisu, Christine Musa, Josphat Kinyua, Mwangi Mwai and Robert Ochoro