CBK says foreign banks targeting local market despite new rate cap

What you need to know:

  • CBK says foreign banks are being lured to Kenya by relatively high returns and the country’s geographical location.

The Central Bank of Kenya (CBK) has disclosed that banks from eight countries are looking to enter the Kenyan market even after capping interest rates and at a time the regulator’s suspension of new lenders still stands.

CBK said banks were being lured to the country by relatively high returns and the country’s geographical location, which makes it an entry point to the African economy.

“I get a lot of banks which want to enter into our jurisdiction, from at least eight jurisdictions among them Japan, as a result of the TICAD conference, the United States, the UAE and South Africa,” said CBK governor Patrick Njoroge who, however, did not name the specific banks.

He noted that the average return on equity of an average topping 30 per cent enjoyed by Kenyan lenders was a key attraction and even if this was to fall following capping of interest rates, it would still be higher than in other markets.

A return on equity of 30 per cent indicates that an investor is likely to recoup their equity input in just over three years.

Kenya passed a law to regulate interest rates a month ago in a move which was expected to repulse investors.

Following President Uhuru Kenyatta’s assent to the law, prices of listed banking stocks slumped as investors sought to offload their shares in fear of a sudden drop in revenues.

Dr Njoroge said local banks were enjoying higher revenue margins than their peers in comparable markets before the price caps, giving them room to cut interest rates and still remain profitable.

The new law has also made small and medium sized banks vulnerable to external investors as they will have to hunt for new capital to upgrade their operations to benefit from high volumes.

Dr Njoroge said the moratorium placed by CBK on the licensing of new banks in October last year was still in place.

CBK froze the entry of new players in the sector to give it time to upgrade its supervisory abilities following the collapse of Imperial Bank.

UAE based Dubai Islamic Bank (DIB) was in the process of setting up shop in the country having received an approval and has since been marking time. DIB has used over Sh2 billion to keep its offices open during the waiting period.

US based JP Morgan Chase has also declared intention to enter the Kenyan market with an eye on banking multinationals, large corporates and the government.

At the end of last year JP Morgan chief executive Jamie Dimon disclosed that the lender was planning to make a second attempt to enter the Kenyan market while accusing the regulator of thwarting its first effort.

“We are asked by our corporate customers why we are not there,” said Mr Dimon last year during an interview.

International banks are looking to follow customers who are opening operations in Africa with Kenya being the launch pad. Its central location on the continent, availability of skilled labour and relatively advanced infrastructure make Kenya an attractive investment destination.


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