Patrick Ngugi Njoroge, Governor, Central Bank of Kenya (CBK) : Interview

Interview : Patrick Ngugi Njoroge

How can the banking sector help to support the goals of the Big Four agenda?

PATRICK NGUGI NJOROGE: Banks are well positioned to fund the agenda’s priorities through credit extension, targeted products and incentives. In housing, banks can boost supply and demand by providing syndicated loans to contractors, as well as mortgage and asset financing options. Concerning food security, banks can join in the flagship irrigation schemes of public-private partnerships by financing the large-scale production of staple foods and the construction of storage facilities. To support manufacturing, banks can finance small and medium-scale agro-processors, and the acquisition of storage equipment. Moreover, they can boost manufacturing exports by providing preferential terms on letters of credit. Lastly, the state’s target of universal health coverage offers an opportunity to finance the expansion of health infrastructure, and purchases of medical insurance covers, tools and equipment.

What can Kenyan banks do to increase system resilience and ensure consolidation?

NJOROGE: Kenyan banks can adjust their business models and increase resilience by developing innovative products on the basis of customer needs. Banks can also embrace financial technology, and rethink their business strategy and delivery models, as they are likely to respond to competitive lending markets and low interest rates by rolling out new products in a bid to stay relevant. Also, Kenyan banks can ensure consolidation by sharing infrastructure and managing mutual cyber and interconnectedness risks.

How has the interest rate cap affected the market, and how can banks improve credit access?

NJOROGE: When the central bank rate is lowered, banks may reduce lending to some borrowers, leading to a decline in credit, which is the opposite of our aims. The share of lending to micro-, small and medium-sized enterprises has fallen since the cap took effect, and GDP growth is expected to decrease by 0.2% in 2018.

The CBK’s reforms are geared towards improving the efficiency of the credit market, encouraging banks to adopt customer-centric business models, increase consumer protection and use positive credit information in loan pricing, and enhancing transparency and disclosure. The CBK is also entrenching an ethical culture in banks to accept lower returns, which could ease access to affordable credit and promote fairness, transparency and financial literacy.

What are the advantage of developing digital platforms for use in government service delivery?

NJOROGE: E-government technologies enhance the efficiency of public service delivery, facilitate communication between the government and stakeholders, and enable the tracking of transactions. The results are generally reflected in greater transparency, more accountability and less financial crime.

How can inflation be better controlled?

NJOROGE: The CBK has been able to control inflation by keeping demand consistent with the economy’s productive capacity. Overall month-on-month inflation has remained within the target range since November 2017, largely due to a drop in food prices. In the near term an appropriate monetary stance and lower consumer costs are expected to keep inflation within that range. In the medium term inflation can be reined in with prudent monetary policy and higher supply, which entails increasing agricultural productivity, adopting cheaper sources of energy, and continuously reviewing the formula for pump and electricity prices. Lastly, we can ensure better control over inflation by coordinating the approaches of the administration and the CBK to the formulation, implementation and oversight of fiscal policy. In this case, the administration’s current pursuit of consolidation programmes should continue.