KBA CEO CHAT - The Interest Rates Environment

CEO | Arun Mathur, I&M Bank, CEO
MONTH | March 2014
Chat Admin
Good morning all
Chat Admin
Welcome to the My Chat with a Bank CEO, Q1/2014 edition
Chat Admin
We start promptly at 10am
Chat Admin
Our topic today is the interest rates environment...the discussion is hosted by Arun Mathur, CEO of I&M bank
Chat Admin
Some housekeeping...we encourage you to update your profile with your name, at least your first name and a profile photo
Chat Admin
Please lets keep questions and comments focused on the topic of the day...any I&M specific questions should be emailed to the bank
Chat Admin
I&M Customer questions should be directed to the Bank's customer service department at email: customercare@imbank.co.ke or 3221000
Chat Admin
Good morning Joan, welcome Jackson and Angela...thank you for logging on, we start at 10am
JACKSON OKOTH
While the Central Bank Rate(CBR)rate has remained at 8.5 per cent since May 2013, banks have not responded by cutting down their lending rates. Why is this?
Joan Wairimu
Ditto Jackson...by far that rate is like a benchmark, how come there is such a huge gap between the banks and the lending rate?
Chat Admin
Jackson, we've noted your question...we will get Arun Mathur to respond when he joins at 10...thanks
Chat Admin
noted Joan...good question...
Joan Wairimu
How can the market interest rate spread be addressed?
Chat Admin
Welcome Dennis Karanja, nice profile pic!
Dennis Karanja
Hello everyone.Thanks Admin. Interest rates affect Kenya's Vision 2030 goal of becoming a middle income economy. What plans are there to have 30year mortgages at 3-6% like the west.
Chat Admin
Good morning all...thanks for joining us...Arun Mathur will be logging on shortly...the topic of the day is the interest rates environment
JACKSON OKOTH
The Central Bank of Kenya has moved the period after which provision is made for a bad debt from three to two months, how is this going to affect operations of commercial banks?
Angela Nyabera
I understand the bank like any other business has to make a profit and has operational costs to consider, but is the final interest rate charged by banks regulated by anyone or it's at their discretion? Kindly educate us on this.
Chat Admin
Thank you Jackson...Angela we've noted your question as well...
Chat Admin
Some good questions coming in...we start the discussion shortly with Arun Mathur...thank you all for joining us...
Dennis Karanja
From a CEO perspective, what is the risk posed to your core lending business by innovative lending products that use business intelligence, data mining, algorithmic scoring to better predict default rates, low risk customer segments and effectively offer a lower interest rate? Are you aware of local banks who have invested in this technology?
Chat Admin
Today we discuss the interest rates environment...next week Wednesday we will be focusing on SME opportunities and challenges
JACKSON OKOTH
The grapevine has it that a Chinese bank is planning to enter the Kenyan market, a move that complicate the interest rate environment and drive mant banks out of business. What is your take on this?
Angela Nyabera
awesome plan bw' Admin
Chat Admin
Dennis...thank you for your question...we've got a good set of questions to get us going...interesting point Jackson on China...
Chat Admin
...we appreciate you all for logging in ahead of time...we start in a few minutes...
Dannish Odongo
Just a quick question Sacco's do not have big financial muscles like the bank yet their interest rates are fairly stable and low at 12%, can banks adopt some Sacco's ways?
Chat Admin
We encourage you all to upload your photos and profiles
Chat Admin
Arun has just logged on...
Arun Mathur
Good morning all, my name is Arun Mathur and I am happy to be here to have a chat with you about interest rates.
Chat Admin
Welcome Arun...we got some questions earlier that we can get started with
Chat Admin
JACKSON OKOTH: While the Central Bank Rate(CBR)rate has remained at 8.5 per cent since May 2013, banks have not responded by cutting down their lending rates. Why is this?
Arun Mathur
@Jackson, thank you for the question.
Joan Wairimu
Banks say lowering rates is sometimes problematic, due to Expensive deposist...but mostly this interest rates are from the most wealthy of this nationa., isnt there a way to balance., because a big chunk of Kenyans will deposist their few thousands., compared to the much wealthier who will deposit their millions with you?
Arun Mathur
The interest rates for lending is based on the spread over our cost of funds and also the risk of the borrower. Obviously the large corporate customers get more favorable rates than an individual who is borrowing a smaller amount which may or may not be fully secured.
pinky pravin
what is your view on the super profits that banks are making and what constitutes a reasonable return on investment in declining economy?
Arun Mathur
The CBR is more of an indicative rate and may provide direction in terms of interest rate stability. It is interesting to note that most banks are still offering deposit rates that are over 10% per annum.
Arun Mathur
Banks are today putting rates below base rates for quality customers which would also include customers who have had a good track record with the bank.
Arun Mathur
According to Central Bank statistics interest rates have declined from an average of 19.3% per annum in 2012 to 16.8% as at December 2013. And this trend is likely to continue into 2014
Joan Wairimu
Sadly , all these measures like your answer above...is at the discretion of a bank...?
Arun Mathur
Thank you Joan for your comments on deposit rates.
Dennis Karanja
What impact do you believe Credit Information Sharing will have on bank interest rates?
Arun Mathur
Banks are accepting deposits for lower amounts and the rate for a three month deposit is quite attractive and compares well with the deposit for say KES 1,000,000.
Arun Mathur
The higher the deposit the depositor is able to negotiate for an improved rate of interest especially when there is a liquidity crunch.
Arun Mathur
With 43 banks and stiff competition for your business, the deposit rates are not exactly in the hands of a bank and it is subject to supply and demand.
Joan Wairimu
Has Credit Information Sharing started to bear fruits in the positive side, where one can negotiate for better rates out a good record? do you have any statistics ?
Chat Admin
Dannish Odongo: Just a quick question Sacco's do not have big financial muscles like the bank yet their interest rates are fairly stable and low at 12%, can banks adopt some Sacco's ways?
stephen cheboi
kindly share the impact of prudential guidelines and consumer protection Act, if a borrower borrows loan on a fixed interest rate,takes a loan for a period of 5years but decides to buy off the loan after one year, can the bank charge interest for the entire period, or for the period they had the loan, n
Arun Mathur
Hi Dannish, your question is very valid.
Arun Mathur
Banks also have to maintain liquidity and cash ratios and also have to pay deposit insurance premiums for the entire deposit portfolio. Therefore deposits in a bank are guaranteed up to an amount of KES 100,000 per depositor
Arun Mathur
Also, the borrower and shareholder in a Sacco are the same group of people and the returns are reflected in the pricing
Chat Admin
we had two questions on CIS
gulleid gulleid
why are the mortgages lending rates high and what can the banks do to lower they lending interest rates in order
Chat Admin
Dennis Karanja: What impact do you believe Credit Information Sharing will have on bank interest rates?.... Joan Wairimu: Has Credit Information Sharing started to bear fruits in the positive side, where one can negotiate for better rates out a good record? do you have any statistics ?
Arun Mathur
Hi Dennis and Joan. Good questions Thank you
gulleid gulleid
i mean in order to support kenyan in building their own houses
Arun Mathur
The Credit Information Sharing has already impacted in terms of quicker turn around times and decision making for those customers who have a clean credit history.
Dannish Odongo
But Sacco's too have been forced to meet liquidity requirements by SASRA? Most of Sacco's deposits arent enough to meet their loan needs so they borrow from the banks but they are still cheaper and stable..why is that
Arun Mathur
It has definitely helped in issuance of credit cards
Arun Mathur
The next area where it is going to have an impact is on home loans i.e. the tenor as well as interest rate. And also it could have a bearing on the value of the collateral
Joan Wairimu
Any statistics coming out of the CIS....on the positive...leave alone the black listing?
Arun Mathur
Banks are already beginning to work with the CRBs. It would also be a good idea for customers to ask for their credit reports from the CRBs. Each customer is entitled to one free report per annum.
Arun Mathur
The comprehensive information sharing was only gazetted last month and you are already seeing that banks are offering products based on positive information.
Chat Admin
an earlier question...
Chat Admin
Angela Nyabera: I understand the bank like any other business has to make a profit and has operational costs to consider, but is the final interest rate charged by banks regulated by anyone or it's at their discretion? Kindly educate us on this.
Arun Mathur
Hi Angela, thanks for your question.
Arun Mathur
Interest rates are not regulated but interest rates that we charge are market driven and therefore not at the entire discretion of a particular bank.
Arun Mathur
It is therefore advisable to shop around as the variety of products available in the market is quite varied and can suit all kinds of requirements.
Arun Mathur
It is also useful to develop a track record with the CRB and use that information to benefit on pricing and other terms.
Chat Admin
another question came up from Denis...
Chat Admin
Dennis Karanja: From a CEO perspective, what is the risk posed to your core lending business by innovative lending products that use business intelligence, data mining, algorithmic scoring to better predict default rates, low risk customer segments and effectively offer a lower interest rate? Are you aware of local banks who have invested in this technology?
Arun Mathur
Hi Dennis, another good question.
Arun Mathur
I would like to say that banks would be very happy to process online loan applications in order to hasten the turn around times but we have to go through a lot of manual process in terms of documentation.
Arun Mathur
As far as credit scoring is concerned it is already happening for home loans and certain consumer loans and this is a useful tool.
Arun Mathur
It is likely that we will be able to invest in technology to create a database so that we can also decide what sort of loan products we would like to promote at different times.
Arun Mathur
The technology for data mining is just coming into the market here in Kenya and it takes around three years to be able to get the correct analytics for the kind of predictive default rates that you have referred to.
Chat Admin
stephen cheboi: kindly share the impact of prudential guidelines and consumer protection Act, if a borrower borrows loan on a fixed interest rate, takes a loan for a period of 5years but decides to buy off the loan after one year, can the bank charge interest for the entire period, or for the period they had the loan, n
Arun Mathur
Hi Stephen, thank you for your question.
Arun Mathur
A bank cannot lock in a customer for a particular period and rate of interest. A customer is entitled to repay a loan early either in part or in full with no penalties.
Arun Mathur
Hi Gulleid, I saw your early question about mortgage rates
Arun Mathur
First of all let us see how mortgage rates are determined.
Arun Mathur
The rate of interest on a mortgage has to be compared with the interest free return on a 10 or 15 year treasury bond.
Arun Mathur
You will observe that in this segment the rates being offered for a mortgage are quite close to the yield on bonds. Therefore a long term interest should not be compared with a short term interest rate such as a overdraft for one year.
Arun Mathur
Banks also are required to raise long term funding such as bonds to match their mortgage portfolio.
Joan Wairimu
Arun sir, while still on mortagages, how long do you think it will take to get more kenyans on mortgages? the number is put at 20,000...affordable mortgages?
stephen cheboi
Thank you for that answer, now in case an errant bank insists that a borower must pay interest for the entire period what is the borrowers remedy?
Arun Mathur
Presently much of the mortgages are being financed through three month and six month deposits so there is a risk mismatch which must be factored into the pricing.
Arun Mathur
Hi Joan, if only we could get documents registered in a shorter time, we would be able to increase the number of home loans to our customers. I must add that this is a priority area for all banks and we are all keen to push this product which is of immense benefit to all Kenyans
Arun Mathur
Through KBA the industry is also engaging with the Government to streamline the process including addressing the inefficiencies in the lands office.
Joan Wairimu
Is that the major concern on affordable home loans?
Joan Wairimu
Please list others...if any.,
Arun Mathur
We are supporting the creation of capacity in the lands office to be able to process multiple units simultaneously.
Arun Mathur
Hi Joan, I recognize your concern about affordable homes. There is also a shortage of affordable homes that we can finance.
Chat Admin
Jackson asked an interesting question earlier...
Chat Admin
JACKSON OKOTH: The grapevine has it that a Chinese bank is planning to enter the Kenyan market, a move that complicate the interest rate environment and drive mant banks out of business. What is your take on this?
Arun Mathur
Hi Jackson, interesting question
Arun Mathur
We already have 43 banks and various mortgage finance institutions in Kenya.
pinky pravin
As a result of the improving market conditions, the October 2013 survey showed that demand and supply of credit is expected to increase across the economy, driven by a rise in trade and investment opportunities in counties, a pick-up in economic activity, declining lending rates, higher demand for commercial vehicles, and demand from expansion activities by firms.what is your take on this findings?
Arun Mathur
If another bank comes in it will not only have to match pricing but also the product features and the quality of service.
gulleid gulleid
arun sir i hope when it comes to mortgages document proccesing and the rate there is big difference and believe the problm lies with the banks nd nt ministry so hw cn the banks create an affordable home loan to all kenyans but nt only few kenyans lyk CEOS.
Arun Mathur
The entry of additional banks will merely increase the choice available to customers.
Arun Mathur
Hi Gulleid, let me clarify on affordable homes.
Arun Mathur
We need to have more developers who can provide low cost housing and this has to be done in quantity so that the availability can be improved.
Arun Mathur
Even if the cost of finance came down drastically the basic cost of the house is the real issue.
Chat Admin
an earlier question ....JACKSON OKOTH: The Central Bank of Kenya has moved the period after which provision is made for a bad debt from three to two months, how is this going to affect operations of commercial banks?
Arun Mathur
Hi Jackson, thank you for your questions.
Chat Admin
All...we noticed that not everyone is able to post a question...please hit the refresh button...
Arun Mathur
The Central Bank provides guidelines on classification of loans and the provisioning thereon. Banks are adequately capitalise to ensure that any adverse provisions can be absorbed.
Chat Admin
Arun, a question has come in from Twitter.
Chat Admin
JNAMASAKA asks... @KenyaBankers this is a question for Arun on my chat with the CEO . Are we likely to see interest rates in Kenya drop to a single digit?
Chat Admin
her name is Joy :)
Arun Mathur
Hi Joy, thanks for your question
Joan Wairimu
With about three minutes left to the chat, Sir if you could help me with a number i can reach you, i would need some sound bytes for radio news to go with info shared here inform of a story., My name is Joan Business reporter with Radio Africa Group., i thank you.,
Arun Mathur
We also have to look at the savers who would be badly effected if the interest rates came down to single digits. What is important is that whichever way interest rates move, it should be a gradual process so that it does not hurt savers
Everlyne Ngare
Given the CBKs decision to maintain the CBR rate at 8.5, do you view that as complacency rather than reducing the CBR to allow the country experience growth?
steve muia
We have seen banks posting increased provisioning in their full years for 2013; can this be attributable to high interest rates or new cbk regulations?
Arun Mathur
Looking to competition we are seeing a steady reduction in interest rates and hopefully we may see a single digit situation in the not too distant future.
Arun Mathur
In the long run low interest rates with a stable exchange rate will be beneficial to all.
JACKSON OKOTH
thank you for the candid responses!
Everlyne Ngare
What 'fresh' Investment tip available in the banking industry could you please give to investors
Arun Mathur
Hi Steve, you will have observed that banks have been lending a lot more as seen by the sharp increase in the loan figures which now stands at KES 1.6 Trillion as at December 2013 which is a significant contribution to economic development.
Arun Mathur
Given this increase in the loan portfolio, the increase in provision is very much in line.
steve muia
Thank you for the response; on the flip side wouldn't this have inflationery pressures on the overall economy?
Abu Salim
Hi sir, would it be right to say the most significant matter is the spread by banks affecting the market interest rates? with recent research showing average of >10%
Arun Mathur
Thank you Everlyne, the decision by the CBK to maintain CBR is also a sign to maintain inflation within target and therefore promoting steady growth.
Arun Mathur
Hi Steve, your understanding is absolutely right. Interest rates and inflation are the monetary tools available with the Central Bank.
Chat Admin
We're going to start wrapping up
Arun Mathur
Hi Abu, thank you for your question.
John Komu
Hello , Does the lowering of the Federal funds rate have an impact on the Kenyan interest rates?
Habil Olaka
Thanks, Arun. This has been a very enlightening session on a topic that is so dear to most consumers of banking services. As you will appreciate there are very pertinent issues coming from consumers and we would want to keep them engaged. them
JOY NAMASAKA
Very insightful chat this has been
Arun Mathur
The spread depends on the kind of products and access to deposits that a bank has. Some banks have spreads which are as low as 6% but their non performing loan ration is also less than 2%
stephen cheboi
please sir, respond to my query before wraping up?
JACKSON OKOTH
Kindly give us your cellphone so that we can carry this important discussion further-Okoth standard business
Everlyne Ngare
Thank you sir for the insight. In my opinion, the attitude is a clear departure from indications from various sectors in the market. For example a kilo of sukuma wiki fell by a margin of 2.01 per cent from 44.11 to 45.01 shillings and the average cost of sugar reduced by Ksh. 2.27 in this period just but a few.
Chat Admin
Cheboi...please repost your question
Arun Mathur
It is possible that banks with a higher spread are having a wider network of branches and have higher operating costs but are able to garner lower cost deposits.
Rakesh Gadani
Chat Admin: The last question & answer automatically updates and the screen scrolls down. This is OK but if one wants to read the transcript/discussion from the top/beginning, one cannot do so from the top going down.
steve muia
Thank you for the interactive session we appreciate you taking time
steve muia
to answer our qustions
stephen cheboi
Thank you for that answer, now in case an errant bank insists that a borower must pay interest for the entire period what is the borrowers remedy?
Chat Admin
Rakesh...we will post the Chat log by tomorrow
gulleid gulleid
thank you sir for giving us your time
Everlyne Ngare
Admin, i have been trying to track down the whole discussion from the beginning but am only able to see the most recent posts. Can adjustments be done to allow viewing of previos posts please?
Abu Salim
thank you. So it is correct then to say the spreads are the determinant of the prices. My understanding of the spread is the margin ABOVe the cost (whatever the cost is)
John Komu
@Rakesh noted the problem too, hold the box color at the bottom of the chat dialog and scroll up
Arun Mathur
Hi Stephen, I would expect all banks are fully compliant with Central Banks guidelines on consumer protection so I don't expect this to happen in Kenya.
Chat Admin
All...there is a scroll bar on the far right of the chat window...you can scroll up...to view...but we will post the Chat Log by tomorrow...it will have the full discussion
Joan Wairimu
Please do not forget to give us a contact, even your direct line will do for me, i do need sound bytes to complete the story., thanking you once again.,
Chat Admin
Thank you Arun for your time...
Arun Mathur
As we are coming to the end of the session let me thank Habil, Abu, Joan, John, Gulleid, Everlyne, Angela and everybody else for the very interesting questions. Best Regards to you all.
Chat Admin
Journalists who are online, please contact Nuru Mugambi at nmugambi@kba.co.ke
Abu Salim
Thank you.
Joan Wairimu
Admin, for a contact?
Chat Admin
All, thank you for joining us...we are using a new platform and are still improving the system
Everlyne Ngare
Thank you sir.
Chat Admin
So please let us know your feedback on the user experience
John Komu
Thank you for this very enlightening chat session
Chat Admin
Next week we chat at 10am with Sammy Itemere of Equatorial Commercial Bank...the topic is on SME opportunities and challenges
Chat Admin
You can read the overview of the topic on the CEO Chat homepage
Chat Admin
We encourage you to post your profile pictures and update your profile...that way we can create a user community...we know many of you joined previous session so its good to put a name to a face
Chat Admin
One of the feedback points that Everlyne has shared is that the scroll bar for the Chat window needs to be more prominent so you can track the conversation
Joan Wairimu
Ditto Everlyne..So there is no way to get a contact for Mr Arun? i am not getting an answer on this sadly?....
Chat Admin
Joan, we've asked journalists to contact Nuru Mugambi of Kenya Bankers Association...nmugambi@kba.co.ke...if you would like to schedule an interview
nuru mugambi
hi joan, what was your question?
Joan Wairimu
Hi nuru., i just need a contact for Arun...even his direct line...just to get sound bytes,,,,as the topic is well covered...all i need is a 10second soundbyte., i would highly appreaciate .,
nuru mugambi
hi Joan...email me your cell and I'll connect you with his office...I hope you can get sound byte from phone or they will schedule something thanks
Joan Wairimu
Nuru thanks,.right away..
Joan Wairimu
a short phone interview will do.,Thanks.
Chat Admin
All...we noted that we didnt get to all questions...we will list the unanswered questions in the Chat log and get the KBA CEO, Habil Olaka to respond to them
Chat Admin
Arun was online from 10am to 11:15am and we thank him for his time...we also thank you for your time and keeping the great questions coming in
Chat Admin
Please do share your feedback on the platform as this is the upgraded CEO Chat platform and we'd like to continually improve
Chat Admin
On Monday we had a "Chat and Win" promotion as we geared up for today...we thank those who logged on to help us test the system
Chat Admin
The winners are as follows....
Chat Admin
Alex Mwenja kariuki muriithi rahera jahera Donald Kogai Everlyne Ngare Austine Mwinzi Sam Nduati John Komu mendi njuguna Virginia Waiti Angela Nyabera Martha Lee ali athman stephen njoroge
John Komu
wow what did i win?
Chat Admin
Alex Mwenja was the overall winner...he recieves the "History of Banking in Kenya" limited edition DVD
Chat Admin
Please log on next week for the chat on SMEs with Sammy
Chat Admin
The Chat Room opens at 9:30am. We start promptly at 10am and end at 11am
Chat Admin
We thank the Farwell Consultants team for helping KBA redesign the CEO Chat platform...we hope you like the new features
Chat Admin
Chat again next week!
John Komu
Looking forward to the next chat
Chat Admin
The Chat Room closes in 5 minutes...Kwaherini.
John Komu
Bye
Chat Admin
120
Simon Lee
hello
Chat Admin
hello
Chat Admin
hello afain
Chat Admin
what was that?
Chat Admin
be silent
Chat Admin
hi
Chat Admin
hi virginia
Chat Admin
hi....
Chat Admin
hi
Chat Admin
hjyh
Chat Admin
hjg
Chat Admin
fhgfh
Chat Admin
fghf
Chat Admin
dgrfg
Chat Admin
hi
Chat Admin
20140708
Chat Admin
anotherone
Chat Admin
hello
Simon Lee
hello
Simon Lee
hello again
Simon Lee
hello
Simon Lee
hello
Simon Lee
hi
Simon Lee
what now
Simon Lee
yes
Simon Lee
hello
Simon Lee
hello
Simon Lee
hi
Simon Lee
what now 3
Simon Lee
3w
Simon Lee
having lunch
Chat Admin
hello
Chat Admin
hello
Chat Admin
hello
Demo Demo
Hello
Chat Admin
Frabk
Demo Demo
Hello
Demo Demo
Hello
Demo Demo
Hello
Chat Admin
whar
Demo Demo
Qwer
Demo Demo
Jjj
Demo Demo
Thr
Chat Admin
hello
Chat Admin
again
Chat Admin
hi there
Chat Admin
I have been to the server and back
Jeremy Nguze
hi people