The-Accountant-Sep-Oct-2017-Final

Finance and investment
free cash flows released (i.e. loan interest
expense is a cash outflow from a business,
meaning that the lower the interest rate,
the lesser the outflows and vice versa).
Another sad confession, that confirms
how ‘reckless’ some banks had become
in exercising their fiduciary duty, is
the argument that they can no longer
make mistakes in lending because the
room for maneuver is limited ( i.e. the
spread between lending and savings
rates is at seven percent, 14-7%). God
forbid, if bankers ever throw caution to
the wind in exercising theirstewardship
responsibilities! Anyway, if you are a
Kenyan and having experienced the Dubai,
Imperial and the Chase bank cases, such
confessions should not shock you to death!
Those flaunting this sick argument are
just confirming our worst fears that many
banks engaged in speculative deals thereby
risking depositors’ money and concealing
their dirty games by announcing stellar
results and generous dividends to boot!
Thank goodness, the party is over!
To the depositors and shareholders,
the interest rate cap is the ‘most timely,
god send miracle and savior’. A ruinous
financial and social catastrophe was just
nipped in the bud!
The pressure to deliver returns to
owners of capital will force the banks
The gluttonous
banks continued in
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.
to adjust to the new reality the soonest.
Living in denial and behaving as if they
want to hold the country at ransom
is a defeatist strategy. Governments
are political institutions that must be
responsive and responsible to the voters’
pains and needs. A government with
an eye to the next elections cannot
and will not repeal the interest rate cap
law to ‘colonize’ the voters again. Bank
shareholders are a very small portion of
the voting populace. It will be politically
suicidal for any member of parliament to
move a motion of amendment to repeal
the law. And even if this were to happen
(banks have the financial wherewithal to
influence voting), no president would dare
assent to such law. Banks must stop living
in denial and accept the new reality. The
7% spread between savings and lending
rate is still too much ‘weight’ by global
best standards. Our banks must innovate
and become efficient institutions. While
appearing on Citizen TV, H.E. the
Deputy President WilliamRuto was
categorical that there will be no policy
reversal on interest rate control. The
Business Daily on 18/05/2017, quoted
him, thus, “our position is that the financial
institutions we have in Kenya should cut
down on their ‘fat’, ---they should cut on
their expenses---they should change their
business model. It is possible”. He went
on to say that it is possible to do business
even with interest rates as low as 10%. To
completely seal the matter, he said, “It is
not justifiable for anybody to tell us that
at 14% which is currently the rate, there
is any serious institution that cannot do
business. We don’t believe so”.
Double speak by banks
How then do top bank staff
get sh591m pay rise in year
of job cuts?
The Business Daily 2nd June 2017,
reported that senior managers’ of NSE
listed banks earned a total pay rise
of Kesh.591million (4.9% increase),
outpacing the lenders’ profit growth of
4.9% and defying massive job cuts that were
recorded in the industry. This was done to
in order “to keep the top echelon happy in
a tough operating environment!”Compare
this greed and selfishness with 1000 job
losses via retrenchment attributable to
interest rate cap! On the one hand, the
junior staff, previously referred to as “ the
most important assets” are shown the door
to cut costs, but on the other hand, the
‘top dogs’ are awarded crazy increments
and bonuses to continue being obese! This
discrimination that goes against Article
10 of our Constitution has not gone
unnoticed by citizens and politicians. I can
bet that the net onslaught on unfettered
corporate greed will be focusing on
bonuses and remuneration. Banks should
trend carefully. To paraphrase what a
former British High Commissioner said
regarding the opulence behavior of the
corrupt in Kenya, ‘banks should stop
vomiting on our shoes!’
Conclusion
Building a competitive edge around
efficiencies is a more enlightened and
sustainable business model. The era of
excessive weight riding on inefficiencies
and a docile customer base is gone for
good! The cheese has not only moved, but
also melted away. Banks have no choice
but to re-imagine and re-invest their
business models to survive and thrive.
stiras@yahoo.com
september - october 2017 15