The-Accountant-Sep-Oct-2017-Final

Finance and investment
action with primary intent of protecting
consumers (the voters), from perceived
‘anti-free’ market tendencies, that appear
exploitative and anti-competitive. I can
bet that we have not seen the last of such
interventions from the legislature.
The month of March, marks the season
for releasing financial reports by banks.
Unlike before where majority of banks
would report stellar financial performance,
the 2016 report card was a bag of mixed
results. Like politicians who always have
perfect excuses to justify everything under
the sun, majority of the bank CEOs had a
perfect scapegoat for muted performance:
capping of interest rate!By moaning and
harping this excuse, they have reignited
the debate on the interest capping, calling
for its immediate abolition or repeal of
the ‘obnoxious law’ that appear to have
abruptly ended the corporate partying and
obscene bonuses in the C Suites!
It is not my intension to revisit the
now tired debate of the pros and cons on
capping the interest rates. That debate
was settled by the people’s representatives.
Mind you, the voters are also shareholders
and customers in these banks.
Spoilt overweight children
Obesity is a major health care concern
globally. Many families have children
who are already overweight at tender age.
Overweight as measured by BMI (Body
Mass Index) is mainly a factor of excessive
consumption of carbohydrates, proteins
and a deficit in exercise. Accumulation
of excessive unprocessed sugar leads to
‘bloated’ size.
Take the case of John’s family where
his three adult children are grossly
overweight, each in excess of 130kg.
Although the children could afford to stay
on their own comfortably, they continue
to ‘feed’ on their aging parents. Anybody
who consumes more than what the body
requires for healthy sustenance is in effect
contributing to food insecurity, denies
others their rightful share, besides being a
burden on the health care systems because
of obesity related ailments. Such children
are not only a liability to their parents but
also to the rest of humanity.
Driven by parental love and care of
their children, the parents have tried
diplomacy, paying gym fees, and giving
incentives for every kilogram of weight
loss. Of course they have been picking
all the medical bills. Frustrated by his
children’s irresponsible behavior, John
and his wife have taken drastic measures
that include food rationing and enforced
exercises. Like the IMF/World Bank
austerity measures, the domestic austerity
feeding measures, though painful have
started yielding positive results.
Banks were ‘overweight’
Using the analogy of the spoilt overweight
grown up brats, our banks were in such
situation prior of the September 2016,
the effective date for the implementation
of the interest rate cap. Like the children
whose parents had to intervene to save
them from the self-destructing habits,
the ‘father’ of the banks, (CBK) had to
intervene through people’s legislative
power, to save these institutions from their
path of self-destruction! Why do I say so?
Let us look at the pre- and post-interest
cap regimes.
Pre-interest cap
This period was characterized by rapid
growth in terms of branch networks,
ATMs, agents, heavy investment in
technologies and staff numbers. Banks
were falling on each other to get deposits
and lend money. Banks literary moved
from the ivory towers to ‘hawking’ loans
on pavements, markets and in funerals!
Unsecured lending became the vogue.
Because banks could charge whatever
they wanted, some facilities attracted
interest rates of 24-28% per annum.
The owners of raw materials -deposits
(remember banks are smartly dressed
brokers who intermediate between
borrowers and savers in air-conditioned
offices), savers, would get minimal returns.
The gluttonous banks continued in
Central Bank governor Patrick Njoroge
appears before the senate finance committee
where they discussed high interest
their feeding spree, lending to all and
sundry, without caring about the default
risk. The obscene spread between deposit
and lending rates provided enough
buffers. This excessive overfeeding in
terms of risk selection, lend to artificial
aura of successful intermediation. We
all recall the billions in annual profits
reported every year. The banking sector
was the only sector recording double
digits growth in the backdrop of corporate
and individual bankruptcies as attested
by profit warnings by NSE quoted
companies. Banks were just behaving like
John’s spoilt children: gaining excessive
weight while sucking their customers’ –
depositors and borrowers!
The banks’ behavior was obviously
not sustainable. The artificial profitability
and success was leading to an inefficient
allocation of resources in the economy, in
terms of capital and labor. A career in the
bank was every graduate’s dream. Rapid
credit expansion led to speculative lending
to very risky ventures, thus jeopardizing
depositors’ money and shareholders
investments. At the global level, the
success of the banking sector did not go
unnoticed, as evidence by acquisitions
at a premium and many expressions
of interests to open correspondent
arrangements. This is not surprising, it is
natural as it can get. Obese persons cannot
go unnoticed, by their mere size and other
characteristics. Our obese banks stood out
in the global arena!
Post-interest cap
If left unattended, obesity kills its patients.
Driven by the insatiable, self-destructing
ugly capitalism greed, our overweight
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