Why CBK faces an uphill task in old generation notes mop-up

Tuesday, September 3rd, 2019 00:00 |
Central Bank of Kenya.

Some banks are still giving out the old Sh1,000 notes to customers despite spirited efforts by Central Bank of Kenya (CBK) to mop them up ahead of the September 30 demonetisation deadline.

This revelation comes at a time CBK Governor, Patrick Njoroge, says he has only removed 100 million pieces of the old notes out of the expected 217 million pieces, a few weeks to the deadline.

Business Hub has learnt that some bank branches, especially those in low-income business zones such as Githurai and Gikomba in Nairobi, issue old-generation notes to customers withdrawing cash over the counter, preserving the new banknotes for dispensing via the now re-calibrated Automatic Teller Machines (ATMs).

Due to their location, such banks witness more deposits than withdrawals as traders bank their daily earnings, a good chunk of which are in old notes.

Hence, these branches rarely need to ask for money from the CBK as they are always receiving deposits from customers, a situation that leaves them low on new currency notes most of the time, forcing them to issue old notes back into circulation. 

“If you want to withdraw Sh300,000 over the counter, we’ll give you Sh200,000 in old notes and the rest in new currency and tell you we have run short of new notes,” said a Githurai-based banker, who requested anonymity.  

“In my branch, we are always remitting money to our headquarters as most of our customers come to deposit. We rarely ask for money from the headquarters, meaning we are always short on new notes. The few new notes we get, we preserve for the ATMs.”

Worse still, according to her, bank branches avoid increasing the frequency of seeking the new-generation notes from CBK as that would result in increased expenses for the branch.

“Getting new notes from the CBK is expensive. One has to pay the transporting company, the police officers escorting the money, and hire a chase car, among other expenses. Unless you keep your branch expenses low, you will never hit your targets,” she added.

However, the banker allayed fears that financial institutions returning old notes back into circulation so late could result in losses if money is demonetised in the hands of clients, saying there was enough time for the recipients to bank the money before the September 30 deadline. 

Last minute

This, however, contradicts Governor Njoroge’s view, who recently asked Kenyans to avoid waiting for the last minute to exchange the old Sh1,000 notes. 

“It doesn’t really indicate much, whatever we have now, because it is quite possible that some will delay the conversion until the last minute, which we don’t want to happen,” he said.

At the same time, a spot check by Business Hub has revealed that although ordinary citizens are comfortable transacting in the old Sh1,000 notes, for now, this could change soon. A number of people say they will shun the soon-to-be demonetised Sh1,000 notes as the deadline nears to avoid incurring losses. 

“I am okay with it (old Sh1,000 notes) for now. I will only start rejecting it towards the deadline. I bank money on a daily basis, so there is no chance mine will expire,” said Agnes Anyango, an M-Pesa agent operating in Nairobi.  

From October 1, the old Sh1,000 notes will cease being legal tender following a demonetisation order by the CBK Governor.

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