Posts tagged as: central-bank

CBK Monetary Policy Committee Leaves Interest Rates Unchanged

By Nairobi

Kenya — Central Bank of Kenya’s monetary policy committee has retained the central bank rate at 10 percent effectively leaving interest rates unchanged.

The committee says the decision to maintain the CBR is to anchor inflation expectations even as the regulator continues to closely monitor developments in the global and domestic economy.

CBK Governor Dr. Patrick Njoroge has said the committee has welcomed the preliminary results of the studies on the slowdown in the growth of private sector credit, and the impact of the interest rate caps.

He says the committee has welcomed the results of the studies and made recommendations which will be finalized in the near term.

Meanwhile, the growth of credit to the private sector recorded a slight increase to 1.6 percent over the 12 months to August 2017 from 1.4 percent in July 201, reversing the downward trend since August 2015.

Average commercial banks’ liquidity and capital adequacy ratios stood at 45.6 percent and 19.0 percent, respectively, in August 2017.

“The distribution of liquidity in the sector is expected to continue to improve but credit risk remains elevated as some large corporates continue to restructure their borrowings,” said Dr. Njoroge.

Kenya

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Kenya: CBK Monetary Policy Committee Leaves Interest Rates Unchanged

By Nairobi

Kenya — Central Bank of Kenya’s monetary policy committee has retained the central bank rate at 10 percent effectively leaving interest rates unchanged.

The committee says the decision to maintain the CBR is to anchor inflation expectations even as the regulator continues to closely monitor developments in the global and domestic economy.

CBK Governor Dr. Patrick Njoroge has said the committee has welcomed the preliminary results of the studies on the slowdown in the growth of private sector credit, and the impact of the interest rate caps.

He says the committee has welcomed the results of the studies and made recommendations which will be finalized in the near term.

Meanwhile, the growth of credit to the private sector recorded a slight increase to 1.6 percent over the 12 months to August 2017 from 1.4 percent in July 201, reversing the downward trend since August 2015.

Average commercial banks’ liquidity and capital adequacy ratios stood at 45.6 percent and 19.0 percent, respectively, in August 2017.

“The distribution of liquidity in the sector is expected to continue to improve but credit risk remains elevated as some large corporates continue to restructure their borrowings,” said Dr. Njoroge.

Kenya

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Kenya: Kenya’s Central Bank Sets Stage for Repeal of Interest Rate Caps

By Business Daily

The Central Bank of Kenya (CBK) Wednesday gave the clearest signal that it intends to push for a repeal of the year-old law capping interest rates because of the negative effect it has had on the economy.

CBK governor Patrick Njoroge, however, warned that commercial banks will have to be more disciplined in the pricing of loans so as not to overcharge borrowers.

“What needs to change is the discipline among lending institutions. They cannot go ahead setting interest rates the way they were doing before. And it is our job to deal with them in the context of that market discipline,” he said.

Dr Njoroge said preliminary findings of a joint study with the Treasury on the impact of the rates capping on growth of credit had confirmed a negative impact.

Parliament passed the law late last year, meaning it can only be repealed by the same institution.

The Banking (Amendment) Act, 2016, which came into force on September 14 last year, caps loan charges at four percentage points above the Central Bank Rate(CBR), presently standing at 10 per cent, and requires lenders to pay interest of at least 70 per cent of the CBR on term deposits.

“I think it is clear to us that this (rate cap) has been problematic in many ways. What I cannot tell you is the path going forward (and) how this will happen,” Dr Njoroge said.

“All I can tell you is that it is in our interest as a country. It is in our interest as a central bank to work to reverse these measures and go back to a regime where interest rates are freely determined, but in a disciplined environment, Dr Njoroge said.

Review of the rate cap

He added that the central bank was keen on maintaining that disciplined environment.

Barclays Bank of Kenya chief executive Jeremy Awori said review of the rate cap, if agreed, can only happen next year, citing the prolonged electioneering period after the Supreme Court voided the re-election of President Uhuru Kenyatta.

“This is a process because it has to go back to Parliament for action. What I can say is that the banking industry is keen not to return to the days when we had runaway interest rates,” Mr Awori said.

“I don’t think this is healthy for anybody. We really need to try and keep interest rates as affordable as possible.”

Mr Kenyatta, who will face off with National Super Alliance’s candidate Raila Odinga in fresh polls on October 17, had on March 15 directed the CBK and the Treasury to study the impact the rate cap has had on access to affordable credit by small and medium-sized enterprises.

“That (study) has progressed and we have some preliminary data, which we may share next week. I am not sure they will be ready to be kicked around by yourselves (journalists), but I think we are getting there. Again, if we miss it by a day (or) a month, I hope we can understand each other,” Dr Njoroge said.

‘Blacklist’

Mr Kenyatta signed into law the Banking (Amendment) Act 2016 at a time when the average interest rate stood above 18 per cent, a level seen as unaffordable for the dominant SMEs.

Dr Njoroge said Credit Reference Bureaus will also be restructured and strengthened based on findings of past studies so they are not seen as a “blacklist” by borrowers, but rather a tool to that enables borrowers to get better rates based on their credit history.

Dr Njoroge said lenders will also have to review how they price risks by looking at individual borrowers and the projects to be funded.

Growth in credit to the private sector slowed to 2.1 per cent in May compared over 17 per cent in December 2015, the CBK data showed in July.

Southern Africa: Angola Participates in Ordinary Meeting of SADC’s Central Bank Governors

Luanda — Angola is participating as from last Tuesday until 16 September in Mahe, Seychelles, in the 45th Ordinary Meeting of the Committee of Central Bank Governors (CCBG) of the Southern Africa Development Community (SADC).

The Angolan delegation is being led by the governor of the Angolan Central Bank (BNA) Valter Filipe da Silva, and comprises directors and technicians of the institution, ANGOP has learnt.

The meeting has the objective to debate the matter relating to the economic transformation of SADC countries, analyse macroeconomic policies, development of trade and investments in the region, system of payments, analysis of financial markets, banking supervision, information and communication technologies.

The gathering is equally intended to strengthen co-operation ties among the region’s central banks.

During the event, the Angolan Central Bank (BNA) Governor, Valter Filipe da Silva, is to hold bilateral meetings with his SADC counterparts.

The SADC Committee of Central Bank Governors (CCBG) is made up of South Africa, Angola, Botswana, DR Congo, Seychelles, Mauritius, Lesotho, Madagascar, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe.

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August Inflation Drops in Uganda, Rises in Kenya

By Maryanne Gicobi

Uganda recorded a drop in headline inflation in August due to a fall in food prices.

Kenya, on the other hand, saw a rise during the same month, driven by an increase in food prices occasioned by depressed rains and low supplies.

According to the Uganda Bureau of Statistics, the country’s year-on-year inflation edged down to 5.2 per cent in August from 5.7 per cent the previous month.

In Kenya, inflation increased to 8.04 per cent in August from 7.47 per cent in July attributed to an increase in the food and non-alcoholic drinks index.

Inflation in July 2017 had returned to the Central Bank’s desired band of 2.5 per cent either side of the five per cent target — at 7.47 per cent.

This was driven by a reduction in food prices including a range of fresh produce as well as cheaper sugar, milk and maize flour relatively to June 2017.

Energy prices also fell over the same period with kerosene, electricity and fuel becoming more affordable.

Same lending rate

Uganda’s central bank maintained its benchmark lending rate at 10 per cent in August, saying that while economic activity was picking up, inflation remained on course for its medium-term target of 5 per cent.

Uganda Bureau of Statistics said prices had declined mainly for fruits while core inflation was driven down by a slower rise in the prices of services without elaborating.

In the basket of goods used to calculate inflation, food takes up the largest share — 36 per cent — making it the main driver of the cost of living, followed by utilities such as rent, water, electricity, gas and fuels at 18 per cent.

In Tanzania’s year-on-year inflation slowed to 5.2 per cent in July from 5.4 per cent a month earlier, largely due to slower rises in food prices of cereals, fish, beans .

Rwanda’s inflation fell to 3.5 per cent year-on-year in July from 4.8 per cent a month earlier.

Uganda

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BOU to Approve Bank Agents

By Eronie Kamukama

Kampala — Bank of Uganda (BoU) is likely to approve bank agents in two weeks, BoU director for commercial banking Benedict Sekabira has said.

“We are now at agent agreement and this has to be in line with the regulation, which is done by BoU. We are about to complete it and once the agreement is perfected, within a fortnight, we shall approve the agents whose list we got,” Mr Sekabira said.

He was speaking last week during a breakfast meeting where the Central Bank, Centenary Bank and other stakeholders were discussing agency banking. The meeting held in Kampala aimed at creating awareness about agency banking.

So far, BoU has received applications from four banks and is relying on assessment made by banks to give necessary approval to agents.

Recent changes in the Financial Institutions Act (2004) are enabling banks to adopt agency banking.

Agency banking permits a commercial bank to appoint a third party (agent) to transact business on its behalf.

The agent can be a sole proprietor, in a partnership, a cooperative or microfinance institution approved by BoU. Once the model takes off, agents will earn commissions on transactions made.

Over the years, there has been growth in financial services but access remains limited.

The banking sector has experienced a number of changes as a result of technological advancement and there has been a shift in the way financial institutions serve customers.

With agency banking, customers will be able to open bank accounts, withdraw cash, access account balance, transfer money and pay bills without going to a bank’s branch.

Statistics show that there are six million bank accounts.

Centenary Bank holds 25 per cent of the accounts.

Mr Fabian Kasi, the bank’s managing director said with agency banking, the bank is targeting to grow its clientele to 4million in the next two years.

The bank intends to acquire over 10,000 agents countrywide by the end of the first year to achieve its target.

Agency banking is expected to significantly contribute to financial services and expand opportunities to rural households and small and medium enterprises.

Besides enhancing financial inclusion and bringing down cost of operations for banks, Mr Kasi said, agency banking is expected to lower bank interest rates.

“Definitely, once we make savings and have our costs down, we believe we should be able to share those savings with the clients by way of reduced interest rates,” Mr Kasi said.

Uganda

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Nigeria: CBN Moves to Mitigate Risk in USSD Transactions

By Obinna Chima

As part of efforts to mitigate risk by bank customers that carry out transactions through Unstructured Supplementary Service Data (USSD), the Central Bank of Nigeria (CBN) has unveiled to members of the public an exposure draft on the regulatory framework for banking platform.

The central bank stated this in the draft framework that was posted on its website thursday.

It pointed out that the implementation of the system in Nigeria has created multiple USSD channels to customers, thereby increasing their exposure to risk, without common standard for all.

The proposed framework, according to the CBN, therefore seeks to establish rules and risk mitigation considerations when implementing USSD for financial services offering in Nigeria.

It noted that USSD based financial transactions require end-to-end encryption to protect the integrity of the financial information.

The mobile phone has become a verifiable tool for enhancing financial inclusion with the advent of mobile payments, m-commerce, m-banking and other implementation fforei nancial transactions based on mobile money.

The providers of mobile-based financial services have options of adopting varying technologies for enabling access and transmitting data including SMS, USSD, interactive voice response (IVR) and wireless application protocol.

The central bank pointed out that recently, providers of mobile telephony-based financial transactions are increasingly adopting USSD technology while the range of services supported by their mobile transactions services using the USSD channel is broadening rapidly.

“Among financial services provided through the channel include account opening, balance and other enquiries, money transfer, airtime vending, bill payment, internet/mobile banking detail retrieval, and one-time password,” it added.

The USSD technology is a protocol used by the GSM network to communicate with a service provider’s platform. It is a session based, real time messaging communication technology which is accessed through a string which starts normally with asterisk (*) and ends with gas (#). It has a shorter turnaround time than SMS and unlike SMS, it does not operate by store and forward which indicates that data are neither stored on the mobile phone or on the application. USSD technology is considered cost effective, more user-friendly, faster in concluding transactions, and handset agnostic.

“The vast applications of the USSD technology in terms of available service have raised the issue of risks inherent in the channel. In this regard, concerns have been expressed on the likely exposure of CBN approved entities to the possible breaching of the USSD-based financial services in view of likely vulnerabilities in the technology and the ever growing threats.

“Furthermore, the implementation in Nigeria has created multiple USSD channels to customers, thereby increasing their exposure to risk, without common standard for all.

“This framework therefore seeks to establish rules and risk mitigation considerations when implementing USSD for financial services offering in Nigeria.

USSD based financial transactions requires end-to-end encryption to protect the integrity of the financial information,” it stated.

To this end, it stated that all providers of USSD-based financial services shall among other things, put in place a proper message authentication mechanism to validate that request/responses are generated through authenticated users; use secure USSD communication channels with a strong encryption mechanism; and not use USSD service to relay details of other electronic banking channels (in case of banks), to their customers, to prevent compromise of other electronic banking channels through the USSD channel.

Nigeria: Nigeria’s Economic Indices Conducive for Growth – CBN

Photo: Premium Times

Market place.

By Chris Agabi

As Nigeria officially exists recession, the Central Bank of Nigeria has said the economic indices are conducive for more economic growth going forward.

A statement from the CBN said, exiting recession “at the heels of more stable exchange rate regime, coupled with declining inflation rate, from 16.10 per cent in June down to 16.05 per cent in July, 2017, it is believed that these factors will provide salutary macro-economic conditions for growth, as anchored on current monetary policy stance of the CBN.”

The statement also noted that the exiting recession at this time confirms the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele earlier prediction that Nigeria will exit recession in this quarter.

It will be recalled that the Governor of Central Bank of Nigeria, Mr. Godwin Emefiele had predicted on 23rd May, 2017 that at the end of third quarter 2017, Nigeria would be out of recession.

Emefiele underscored the possibility of the exit based on the obvious positive economic indices such as downward trending inflation rate, improvement in the GDP growth rate, noting that negative growth rate had decelerated quite significantly, coupled with improvement in the quantum of foreign exchange going to the real sector and industrial capacities.

In his prediction, Mr. Emefiele had said, “We’ve seen positive signs in various economic sectors, I am very confident that at the end of the third quarter, we will be out of this and I still hold that position”.

According to the National Bureau of Statistics (NBS) in its Quarter 2, 2017 GDP Report release

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Lenders Breached Rules After Chase Bank Collapse

By Allan Olingo

Twelve banks in Kenya failed to comply with banking regulations in 2016 due to panic run on deposits after the collapse of Chase Bank, a mid-tier lender.

The Central Bank of Kenya (CBK) report shows that the lenders, which are not named, breached the liquidity ratio.

According to CBK, three banks violated the Banking Act by lending more than 25 per cent of their core capital to a single borrower.

Two other lenders were in violation of the Banking Act and CBK Prudential Guidelines on capital adequacy, which require an institution to maintain minimum core capital to total risk weighted assets ratio of 10.5 per cent and total capital to total risk-weighted assets ratio of 14.5 per cent.

One bank did not meet the law requiring it to maintain a minimum core capital of $10 million, while seven others failed to keep a liquidity ratio of 20 per cent.

“This was observed after placement of Chase Bank Limited into receivership causing panic withdrawal of deposits in small and medium banks. However, the situation normalised later in the year,” CBK said.

CBK said two lenders invested more than 20 per cent of their core capital in land and buildings against its Prudential Guidelines on prohibited business.

Two others were castigated on corporate governance for failing to have every member of the board attend at least 75 per cent of meetings in the financial year.

“The appropriate remedial actions were taken on the concerned institutions by the CBK in respect of these violations,” CBK said.

The regulator usually issues a warning or a penalty depending on nature of the violation.

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Number of Mortgage Accounts Declines for First Time in Decade

By Charles Mwaniki

The uptake of home loans dropped for the first time in a decade as banks tightened access to mortgage financing with last September’s coming into force of a law capping interest rates.

The Central Bank of Kenya (CBK) says in a newly-released report that the number of active mortgage accounts fell by 373 or 1.5 per cent to 24,085 at the end of December – a significant reversal from where it stood in the previous period when the number of loan accounts grew at a compounded annual rate of 12.9 per cent between 2006 and 2015.

Kenya had 7,275 mortgage accounts in 2006, which steadily grew to 24,458 in 2015.

The CBK says the lenders reacted to the rate capping law by tightening the credit standards for such loans, while also shunning longer term loans, where mortgages belong, in favour of short-term credit.

Banks refused to lend to mortgage borrowers even as demand rose as more Kenyans sought to take advantage of the lower lending rates to buy homes.

“There is increased demand for mortgage loans due to perceived affordability after the introduction of interest capping law in September 2016.

There is also increased appetite for mortgages as more borrowers perceive that they can qualify for higher amounts,” said CBK in its 2016 banking supervision annual report.

“But commercial banks have on the other hand introduced tighter credit standards so the actual mortgage disbursements have been lower than the increased demand,” the CBK says.

The trend makes for gloomy outlook for the mortgage sector, which has over the years been seen as underperforming due to the relatively low number of accounts for a country of 45 million.

Previously, high cost of credit was cited as a major impediment to the growth of the mortgage market, alongside high cost of property and incidental costs that include stamp duty, legal and valuation fees.

Last year, however, the signing of the rate cap law resulted in the average interest rate charged on mortgages falling to 13.46 per cent, from 18.7 per cent in 2015.

Borrowers were also keen on a fixed rate mortgage following the rate law as they looked to lock in the benefit it offers, should there be a revision down the road.

“About 62.1 per cent of mortgage loans were on variable interest rates basis compared to 89.3 per cent in 2015. There seems to have been more uptake of fixed rate mortgages by home owners after the introduction of interest capping law,” said CBK.

Kenya

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