KBA CEO CHAT - Developments in the Financial Markets

CEO | Maina Kihara, I & M, CEO
MONTH | September 2017
Chat Admin
Good morning everyone
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Glad you could log in this morning
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We look forward to an engaging session on the chat this morning
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Hello Kenneth, karibu to the chat
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Good morning Richard, glad you could join us
Kenneth Nderitu
Morning Admin
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Morning Erick, welcome to the chat
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Hello John Kibe, great to have you here
JEREMIAH NDALANA
With large portfolio of Financial organization in kenya , is 3 CRB institutions enough to cover all financial institutions?
JEREMIAH NDALANA
How is regulation doing to rogue Saccos in the financial markets?
Chat Admin
Greetings Jeremiah, glad you could join the chat
JEREMIAH NDALANA
Thank you
Chat Admin
Thanks for your questions, you're welcome to keep posting ahead of the official start of the chat at 10am where the host will begin to answer and unpack them one by one
Chat Admin
We are pleased to welcome you all to this morning’s "My Chat with a Bank CEO" session
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Our topic this morning is Developments in the Financial Markets and our host this morning is Mr. Maina Kihara the CEO of I&M Bank Limited
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As we await the start, we welcome you to update your profiles and add in a picture of yourself. We would like to know more about you
nuru mugambi
Hi all good morning
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Hi Nuru
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Hi Anne Muchina,
Chat Admin
welcome to the chat!
Chat Admin
David Indeje, Paul Muigai and Eva, glad to have you here. You're welcome to update your profiles and upload a profile picture
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Onesmus and Festus, karibuni sana!
Onesmus Mukewa
@admin, tried adding the photo, failed :(... Will try later
Festus Rotich
Good Morning and thanks admin
Festus Rotich
How will the implementation of IFRS 9 in January 2018 affect the players in the industry?
Chat Admin
Onesmus, thanks. please try again
David Indeje
What is the size of the image to be uploaded? Mine gets being denied
Onesmus Mukewa
Good morning all. My questions will mostly be in Cybersecurity. In light that banks are heading mobile, and web. Are security implications being addressed, or just another catch-22 scenario like Equifax?
Chat Admin
To get the discussion going straight away, please feel free to post your questions before we start so that we can kick off promptly at 10am.
JOHN KIBE
My Question To the CEO is; Financial markets are said to be the barometer of the economy&now that we have extended the electioneering period what are the likely outcome on the economy status,
Chat Admin
This quarter's theme is Redefining Banking and Finance and today's topic is Developments in the Financial Markets
nuru mugambi
Good morning all
David Indeje
What are the CEO's analysis of constraints and opportunities for the financing of SMEs in Kenya? This is especially in the wake of the Banking Act.
Chat Admin
Kelvin, Ann and Victor, karibuni sana
David Indeje
Is it true that the financial services offered by commercial banks to SMEs is away of solving their financing problems?
Onesmus Mukewa
Secondly, Blockchain (not cryptocurrencies)... Above the much hype/buzz, as we are heading to algorithm banking/Banking 4.0. What do you think can be practical problems blockchain can solve.
edwin obino
good morning all
JEREMIAH NDALANA
Investors have little confidence in the Kenyan capital markets. This is due to losses that have been experienced in the past. How can this be improved?
nuru mugambi
Hi all interesting questions...good stuff!
Onesmus Mukewa
Thirdly; The banking industry has been roughed up by the interest cap for almost a year, hundreds of jobs lost, huge NPLs, struggling SMEs... Being that the law is on the way to be repealed, what are your thoughts on how the banking industry should react, and forge a new plan ahead to regain itself?
Chat Admin
Ladies and gentleman, allow me to welcome our host Mr. Maina Kihara, the CEO of I&M Bank to this morning's chat. We look forward to his insights and an engaging session with you all
monkey king
Also, are Banks receptive to blockchain technology? Banks are loyal to their systems. Cloud is still facing resistance in adoption
Maina Kihara
Welcome everybody. Im glad to be hosting you here. Im sure we will have an interesting session.
Maina Kihara
So today's topic is very interesting because we have come a long way in the deepening of the financial markets. If I recall back to when I joined the banking industry...we had price controls at the time -- exchange rate controls, interest rate controls, capital controls...and I joined at the time these restrictions were about to be removed and when they were, we have since seen significant growth in our markets . Kenya is now seen as a shining example of a strong financial market in Africa.
Maina Kihara
So welcome. And we will start addressing the various questions you have.
Maina Kihara
I see questions have come in before I joined...Welcome Jeremiah, Festus, David...and a few other early birds! Thank you for joining and for your questions.
Maina Kihara
To Jeremiah's question about confidence in the capital markets
Mukami Nyaga
With the many developments in the financial markets, what are the major reasons that limit Kenyans from investing in these marketss
Maina Kihara
Actually, recent trends indicate somewhat of the contrary...we have seen the stock markets rise quite significantly from its low points...but, this reflects the expectation that we are going to see further growth in the economy and also that corporate governance standards are improving, even though we have seen some isolated challenges, but it is clear that the various regulators and the industries concerned have been serious about these issues. So as a result, we've seen external investors come into the markets, and more homegrown investors, and all this has helped drive up the stock indices over the last year or so. We have also seen significant interest in our debt markets (bonds) and this has also been as a result of deepening participation by market players like stock brokers and investment banks, as well as commercial banks.
Maina Kihara
Thank you Mukami...good question
Maina Kihara
A key limitation to Kenyans investing in these markets is an understanding of how the financial markets work.
Maina Kihara
We at the KBA are working to improve financial education. Working with banks for example to ensure that they explain their products to their customers. Indeed, this CEO Chat platform is actually an excellent platform to demystify the markets and how they work.
Kamau Kionga
can the industry repackage its assets (loans) for sale at the secondary markets at a discount.
JOHN KIBE
M-Akiba recently introduced by bthe govt makes it more understandable to an ordinary citizen, are banks also likely to follow suit
Maina Kihara
Access to capital is another key limitation to financial market participation. And deepening also means taking care of micro investors as well as large investors. Hence, initiatives like M-Akiba which the industry has been instrumental in developing together with the Government and CMA, has been an innovative solution to providing access to government securities for small investors. Its the first of its kind in the world.
Maina Kihara
John, thanks for your M-Akiba question...as mentioned to Mukami, its a key innovation and banks were involved every step of the way. Indeed our new PesaLink platform was used to facilitate investments into M-Akiba.
jimmy akali
On creation of employment and in the wake of interest rate capping,SMEs are finding it tough to access credit bearing in mind this group employs and contributes to Kenyas GDP, how wil banks salvage this situation?
Erick Asuma
Hi Mr Kihara, in your own view, what are the implications of the IFRS-9 which becomes effective next year
Maina Kihara
I see Kamau's interesting question on how secondary markets can facilitate liquidity in the loan market
Joel Owuor
What is the role of digital marketing in financial markets?
Edna Maritim
How is the Kenyan Banking Sector using #data and predictive analytics to guide and make their real Estate investment decisions?
Maina Kihara
So, to understand secondary markets, we need to explain that primary markets are where we get the initial issuance of securities or financial assets. For example a bond is issued by a company (say a bank)...and that is a primary market issue. Once issued, that bond can then be traded by different investors who are looking to participate in that financial asset; but had maybe missed the chance in the initial issue. So this trading of securities between investors constitutes the secondary market.
Maina Kihara
So to Kamau's question of whether or not banks can repackage their assets (loans); yes they can. And actually the mechanisms to do so are already in place via the capital markets. For example, if a bank wants to sell its portfolio of mortgages, it can package those assets/loans into an asset backed security or ABS, and sell those securities. In this case, it would be a primary issue. The trading then of those securities would then be accessed by the secondary market players.
marvin collins
What is taking kenyans so long to embrace card payment?
Joel Owuor
What are the steps that the banking sector taken to enlighten people about the forex trading?
Erick Asuma
Treasury & CBK have said the they are studying the impact of the rate caps with a view of lobbying the Govt to scrap the law. Many of you have complained that you have lost a big chunk of your income partic.. interest income. Could you quantify the impact of the law on your earnings since implementation?
Kamau Kionga
Thank you Maina. This will be a game changer in the industry. How soon are we likely to see the first product?
Maina Kihara
In addition to Kamau's question...rating agencies play a role in rating that issuance. which brings into context Jeremiah's question about credit reference bureaus or CRBs, which serve the same purpose but for retail markets. CRBs have been really good for reducing the search costs that a lender incurs when assessing a borrower. And certainly the more CRBs we have licensed the better because it improves competition and lowers the costs for everyone. However, even with the number that we have right now, what's really important is data quality. And that means we need to enrich the information that the bureaus access; by ensuring that all providers of credit information are actually feeding information into the CRBs.
Maina Kihara
There are a number of questions on interest rate capping, our position as banks, and the impact. Onesmus, Erick and others...thanks for raising this topical question.
Joel Owuor
Due to the collapse of banks such as Imperial and Dubai Bank, is it safe to still trade with banks in Kenya due to the given banking conditions where laying off of employees is the current norm. What is your take on that?
JOHN KIBE
How did interest rate capping affect short term money markets e.g overdrafts
Maina Kihara
First off, what's important to understand about the interest rate capping issue is that banks are not proponents for high interest rates. Indeed, our position is that lower interest rates actually are helpful for economic growth. What's important is that we get those levels through market forces.
Fred Mutisya
The most notable development on the Accounting side of the Financial Markets is IFRS 9 in 2014 for implementation from Jan 2018, as a follow up to the question on rating agencies, Do we have enough capacity to model Expected Credit losses and accurately provision loans at their origination? How will this affect Kenyan Bank performance going on?
DAVID OTIENO
Hi Mr. Kihara what is your view on the idea that CRB's should be meant not to limit someone from accessing loan facilities as it is right now instead it should be able to give a risk rating for an individuals credit appetite?
Solomon Kababu
With the move towards mobile money, what is the future of banking
Joel Owuor
what is your take on the CBK's pan to introduce the Annual Pricing Rate model to enable customers compare different rates?
Maina Kihara
Our position is that we should remove the challenges that drive high interest rates. Pricing is driven by competing demand for credit. So for example, government borrowing will help shape how banks price loans. Why does it do that? Because lending to government is low risk for banks. So we look at the price we would lend to the government, and then add a margin to cover default risk. We must also cover the cost of providing our services. And all this adds into the margins. As we get more efficient as an industry, the margins come down due to competition and innovation. Even before interest rate capping, bank spreads had come down significantly due to these factors. It is clear that with additional innovations in the way we offer our services and the cost of accessing third party services like Government registries, loan pricing can come down even further.
Elizabeth Njambi
Given the rise in use of Tcehonology in banking e.g mobile banking and internet banking, what measures do our banks put in place to protect from cyber crime
Maina Kihara
Lower pricing of loans would allow us to lend more to our customers, but only if we can cover the risks. That means therefore, removing constraints to pricing allows innovation, and allows banks take more risks with borrowers.
Maina Kihara
And this leads to the SME question that Jimmy has asked ...
Laura Kiama
Thank you Sir ,for giving us this opportunity to chat with you. Its often said that Information Technology is an enabler to business growth What in your view is the best way to bring in IT (specifically IT security) technology to support development in the financial markets
Maina Kihara
If we can ensure that the SMEs are less risky in their business, through either insurance, removing information challenges (better book keeping), and so on, it would mean that banks would be willing to take on more risks within their SME portfolios. The price however, at which we do that has to reflect the risk that we are taking. And that's why the interest rate capping has adversely impacted SME access to credit.
Julia K Marami
Hi Mr Kihara. Fred Mutisya raised a question on IFRS 9 as a follow up to the question on rating agencies. Please respond? Thanks.
Joel Owuor
why is the distribution of market power just skewed to only six banks making CBK ineffective in the past?
Maina Kihara
We as KBA are tackling our ability to service the SME sector within the current environment. We will soon be launching the Inuka SME program to help build capacity for micro, small and medium sized businesses. Banks are also actively engaging with insurance service providers, including Government, to derisk the SME sector. Also, banks are looking to set aside a portion of their portfolio to this sector.
Maina Kihara
Okay I see a number of innovation questions...digital banking, blockchain...mobile...thanks for your good questions
Laban Chege
I am running a private limited company offering credit only services and not taking deposits, is their any legal requirements or regulation in place for this kind of companies in kenya?
JOHN MUINDE
Hallo Mr Kihara, What do you think is the future of investment banking, hedge funds and private equity in this country and What would be your advise to any college student looking to pursue a career in this areas?
Joel Owuor
Sir you havent responded to any of my questions but i wont give up. Kindly respond to that of distribution of market power.
Maina Kihara
Banks have always been early adopters of technology. And indeed the growth that we have seen in mobile banking and other alternate banking channels like internet, ATM, and so on, has been as a result of banks' willingness to adopt these innovations. The Central Bank of Kenya has also played a significant role in enabling innovation, buy choosing to regulate after innovation. So it is my expectation that all the developments we are seeing in blockchain and digital banking, etc., will also be similarly transformational for our sector. Indeed, we have seen the impact on financial inclusion and its a great thing for more and more Kenyans to access financial services.
Laban Chege
Though off todays topic, kindly respond to ' I am running a private limited company offering credit only services and not taking deposits, is their any legal requirements or regulation in place for this kind of companies in kenya?
Maina Kihara
So Joel to your point about digital marketing, well, the applications are limited by banks' creativity. The point is we should use digital to get closer to our customers.
Joel Owuor
The trend of Sharia law in the financial market is big. How does it contribute to people of different religions/
Maina Kihara
Hi Edna, the question you raise is linked to digital and its impact...digital will impact all sectors that banks engage in, including real estate. Indeed, the KBA now has the leading real estate index (the KBA House Price Index) and as our data gets richer, and our analytics gets better, we will find the opportunities to serve our customers better in this space as well.
Maina Kihara
Marvin good question...actually we have over 15 million Kenyans using a combination of payment/ATM cards. Its a complement to all other payment channels. It is however easier to access credit through digital channels hence the low credit card penetration, which is about 250,000 cards.
Elizabeth Njambi
Speaking of innovation and development. Why have most banks been slow to adopt mVisa?
Maina Kihara
To the issue of Cybercrime raised by Elizabeth and Onesmus, its great to see our legislatures responding to this key emerging risk. Banks are also at the forefront of sharing information and shaping policy. So that we can tackle this major threat together.
Maina Kihara
Festus and Erick...IFRS 9 will make it easier for banks to get closer to the regulatory standards for measuring credit risk exposure and provide for non performing assets. Its still early days and banks are building the necessary models to ensure that we are ready for the change in accounting approach.
Maina Kihara
Thanks Kamau
Ronny Mwirigi
Hallo Mr Kihara. There is this notion that the kenyan market is over banked factoring our population and numbers of banks operating. Recently the CBK lifted the moratorium to allow yet more banks in the industry, what is your take on this?
Laura Kiama
On cybercirme matters ,does this mean that IT Security budgets will now be getting priority at board level?
Maina Kihara
Joel you have the most important question of the day! Our key currency as banks is trust. Our customers must trust us. We have to therefore place a significant focus on integrity and corporate governance. This is non-negotiable. And as an industry we are setting in place a self regulatory mechanism that insists on the highest standards of corporate governance. This reinforces the efforts by various regulators to make sure that the banks are safe for all customers.
Maina Kihara
Joel visit costofcredit.co.ke so you can see that we have already taken steps towards greater transparency in pricing, including using APR.
Joel Owuor
thanks for your responses.Hope to interacting with you personally.
Maina Kihara
Laura thanks...I hope you saw my earlier point to the innovation question. Information Technology is at the heart of this. And banks are as I said great adopters.
Maina Kihara
Sadly our time is up!
Joel Owuor
TRhank you.
Maina Kihara
I know that we still have a number of questions that we unfortunately havent had time to tackel.
Maina Kihara
However we have a great team at the KBA who will compile the unanswered questions and I will share my responses and they will email them to you.
Festus Rotich
Thanks Bwana CEO for your time.
Fred Mutisya
Thank you.
Maina Kihara
I hope you have enjoyed the past hour interacting as much as I have. Thank you very much for your questions. Im delighted to see how much interest there is in our industry.
Laura Kiama
Thank you for your time
Elizabeth Njambi
This chat is a good idea and quite enlightening. You should dedicate more time to the session next time. Thank you for taking the time to answer our questions today
Maina Kihara
I will ensure that your sentiments are shared with my fellow CEO colleagues.
Festus Rotich
Dear Admin......I think we need to discuss on the time.
Maina Kihara
Thank you and have a great weekend!
Festus Rotich
One hour is not enough
Chat Admin
Ladies and Gentlemen, allow me to take this opportunity to thank Mr. Maina Kihara for being with us today and for his insights
Onesmus Mukewa
@Maina have a great day and weekend ahead of you
Chat Admin
We would also like to thank you all so much for your questions and comments. Your contributions have made this session a success
Conrad Karume
Thank you. This was very informative.
Onesmus Nyaberi
My main interest is with capital markets,why do banks as key brokers publicise less matters capital markets.Does it mean capital markets are limited to a certain sphere or cluster of investors?
Concepta Imbali
I learnt something. Thank you
Chat Admin
Please join the CEO for a live session on Facebook at https://www.facebook.com/ktnkenya where he will wrap up today's discussion on Development in the Financial Markets
Onesmus Nyaberi
Is it possible that banks are now moving into offering Insurance services
Chat Admin
Please log into the Facebook session now to continue the discussion
Chat Admin
The chatroom closes in about 10 minutes. You can get copies of the transcript, podcasts and other information relating to this and all past chats in the Archive page of chat.kba.co.ke website
Chat Admin
We look forward to meeting you next Friday, 29th September at 10am. The topic will be on the Pathways to Home Ownership. We look forward to another exciting chat session
Alex Mugo
Thank you...see you then
Chat Admin
Have a good day and weekend ahead. ..Log onto Facebook live chat now!
Donald Madzika
Great informative chats. Thanks!
Tiberius Onsongo
great team,I love the direction we are up to.
Chat Admin
You're welcome join us again next Friday for another session. For now, you can join Mr. Kihara on KTN Kenya Facebook page as he answers more questions live