Ten months ago, Kenyan Members of Parliament vetting Dr Patrick Njoroge for the position of Central Bank of Kenya Governor, chose trivia over essentials, quizzing the Yale-educated economist about his bachelorhood and austere lifestyle.
“Having spent close to 20 years dealing with economic issues, I was taken aback that the population was more interested in my personal life,” Dr Njoroge would later say.
Working away from Kenya in Washington with the International Monetary Fund may have made the reserved economist an enigma back home but his experience in dealing with crisis-hit countries is now shaping his management style as he seeks to clean up Kenya’s banking sector.
Six months after he took up the position, two banks — Dubai and Imperial Bank — were already in receivership, thrusting the soft-spoken governor into the limelight. And he did not disappoint, for he brokered a deal that saw Imperial Bank depositors paid $10,000, to save distressed households and businesses.
“It is fair not to use the innocent depositors as pawns in this tussle with the shareholders as we seek ways to reopen the bank,” Dr Njoroge said.
Four months later, and with Chase Bank under receivership, Dr Njoroge would pull another deft move, roping in KCB to manage the bank and give depositors access to their money.
He quietly admitted that previous CBK regimes’ supervisory credentials were in tatters, reorganised the departments and let go some senior managers.
Dr Njoroge was also ready to take on banks on high interest rates, arguing they “were comparable only to countries that had been hit by a banking crisis.”
He set to work, forcing open the secretive world of banks; indeed, in the past nine months of his leadership, Dr Njoroge has taken the banking industry into unfamiliar territory.
This year, he forced banks to rework their full-year financial statements, signalling a no-nonsense regime. In a recent interview, the governor, whose doctorate thesis was on modelling the consequences of financial crises, said banks will have to shift from competition for profits to factual presentations of their books.
“The era where banks would wait for one to declare their profits, then compete to see who had the most impressive results is no more. We are now insisting on factual representation of the results,” Dr Njoroge said in response to the re-provisioning of the National Bank and Chase Bank results that saw both financial institutions report losses, after having been forced to correctly book their non-performing loans.
At his vetting, the governor had told off MPs over their proposals for either forming a government bank that would give cheaper loans or introducing legislation to control lending rates. This was despite the government having a shareholding in National Bank, Consolidated Bank, KCB and Development Bank.
According to Mercyline Gatebi, a research analyst at Genghis Capital, the sector could be entering an era of consolidation, with a wave of takeovers or mergers as banks strive to remain competitive.
“It’s going to be a tough call,” Ms Gatebi said.
This would in effect achieve Dr Njoroge’s intended goal of making banks increase their core capital.
The governor has also been vocal about the country’s external borrowing, terming it excessive, while saying the government needs to evaluate where this debt is going into, contradicting National Treasury Cabinet Secretary Henry Rotich’s position that borrowing is within limits.
“I am strongly advocating fiscal prudence by the government to maintain stability,” the governor said.
For instance, at the time of assuming office, the Kenyan shilling was losing ground to the dollar, hitting an all-time low of 105 units to the dollar. Dr Njoroge blamed rogue dealers, promising to rein them in and restore discipline in the market.
Less than a month later, Dr Njoroge had raised the benchmark interest rate by 150 basis points to 11.5 per cent and tightened liquidity to bolster the shilling. Banks and currency dealers conformed, with the shilling stabilising at 101.40 units to the dollar.
Rules must be followed
“We will insist on market discipline... The players have to adhere to the rules. We have also tightened access to the discount window. Banks have to manage their finances within the market and improve managing their own liquidity,” Dr Njoroge said in November last year.
The governor, despite his tough stance, has been quick to offer solutions. His action on Chase Bank has been hailed as quick and timely. Prior to that, he had stepped in, offering liquidity to any distressed lender.
Kenya Bankers Association chief executive Habil Olaka is in agreement with this.
“We needed to give confidence to the market that the government and Central Bank will not allow the sector to be pulled down,” Mr Olaka said
Andrew Ritho, a communications officer at Opus Dei, the Catholic Order to which Dr Njoroge belongs, says the institution values “servant leadership.”
“You must work well wherever you serve and in so doing, you will achieve personal growth and excellence,” Mr Ritho says.