Of lazy Kenyan bankers and the too big to default syndrome

I promised that the article I penned previously, Incest in the banking sector, would not be a single shot in the dark whether I did or didn’t get a response but would be exhaustively completed.

Soon after I wrote the article, which had been triggered by the unified cry from the Kenyan banks blaming the capping on interest rates for their dismal 2017 results, the governor of the Central Bank of Kenya, Headmaster Dr. Njoroge, insinuated that the capping would be reviewed. Note that a review could be in either direction or none at all.

Which got me thinking, when exactly did the rain start pelting the banks, was it after or before the capping? From a lovely graphical analysis shared by the Central Bank of Kenya it was definitely before.

Effects of capping interest rates

Bank interest income 2016/2017

As a shareholder of Kenya Airways shares, I had the discomfort of experiencing what is called a reverse split or in English an amalgamation, my hundreds of thousands of shares were reduced into thousands of shares without a corresponding increase in value per share. 

If I was an active investor I would have seen it coming but just like my bankers I too had total faith in the size of the airline and its ability to get its performance back up.

Fortunately, the money I have in the shares is part of my retirement fund unlike the banks which had put in other people’s money. 

If all goes well I will not need to deep into this investment for another 10 years by which time the value should have been restored, but the banks put in money they had “borrowed” from their clients in form of high return fixed deposit accounts, for them the conversion of debt to non-voting equity will have an impact on the bottom line.

So, how did so many of the banks end up with so much money in a floundering public listed company whose financials are in the public domain?

It was as a result of the laziness of the bank’s loan officers and their board of directors’ risk committee as instead of carrying out their own due diligence what they did was play “follower the leader”, since the perceived bigger bank had extended credit then it means that the organisation was good for business.

In addition, there was the belief that Kenya Airways was too big to default, even though they had done it multiple times before. But since the relationship manager chasing the deal had been poached (which also refers to a method of cooking an egg which would then never be able to hatch) from the bigger bank where that account alone had allowed them to meet their annual targets 3 years in a row.

So, they arrive at their new station with an electronic and hardcopy version of the worksheet that the risk team at the bigger bank’s global headquarters, somewhere in Asia, had developed and then proceeded to run a “search and replace” for bank name. The next step would have been to get a war chest provided to go and get that big fish.

Unlike the smaller bank, the larger bank’s team sitting somewhere in Asia have a way to ingest the Kenya Airways as well as other companies’ financial data directly into the model (because they are able to speak XML, CSV and XBRL and not PDF) while the newly funded poached employee relies on the local news bulletins, prepared by English majors to keep abreast of the company’s performance. 

I am yet to get a bank that asked me to provide financial information in machine readable formats, the best they have done is accept it in PDF which to me is no better than one printed on paper or written on tissue, the same is the case with how they are willing to share my information with me.

That is why when the shit hits the fan, the newly handicapped (please, to the uninitiated this has nothing to do with limps) and poached employee finds out about what has been agreed upon by the other creditors and the debtor then rushes to court to stop the agreement from applying to them as this eventuality was not in the template.

Suddenly the too big to default debtor has defaulted and suddenly the bank is in a crisis, the facilities that are coming due in 30, 60 & 90 days cannot be settled as the single golden egg laying goose lies injured and is now laying normal calcium carbonate covered eggs, option, liquidate government paper.

As if this was not bad enough, some brilliant economist somewhere in the dingy corners of the treasury has just finished working on a model, part of his PHD research, showing the impact of a capped interest rate, but I speculate.

The paper had been shared at a forum for economists, of which the poached blue-eyed boy/girl is also one but was unable to attend because they were moving house, or was it attending a team building exercise at a remote resort.

Whereas the team sitting somewhere in Asia or South Africa had already prepared and presented the options to the bank’s board of directors’ risk committee, both in prose and as an infographic (some are not too bright) capping it off with a sleek slide presentation with the bottom line being RUN, our poachers on the other hand are still at the bar of the resort where the team building exercise had been going on since Tuesday.

Allow me to digress again for a minute, I once happened to be lounging at one of this resorts where one of the fast growing bank’s staff, dressed in brown, were having their team building activities, the conversation was about why clients stick with them when they are small but immediately they grow, off they go to one of the blue teams, yes I was eavesdropping but in my defence the fellows were quite loud (yes there were no women, no prices for guessing correctly).

To some of you who have read this far it would seem like I have a bone to pick with the senior officers in the banking sector, I assure you it isn’t, it’s but an observation of how we as indigenous and native citizens have been unable to make a major impact in moving the economy forward. Is all we need a few white old men!

We too quickly get engrossed in the trappings of so called success without the substance and have become complacent about our real responsibilities, poaching staff has become the only method of knowledge transfer and acquisition, instead of developing the same internally or widening the pool from which we infuse new blood. 

The poaching from within the same industry fails to take into consideration the culture of the organisation or its target market but also when bringing in fresh skills there needs to be a structure for induction to avoid cocooning and dumping as we have seeing recently at a bank and media house.

It is sad that 90% of the banks ask you the same questions when you want to get a loan, for the innovators out there this would be very easy to turn into an app that allows one to send applications to all the banks after filling the requirements for one of them. 

This is not innovative at all but a clear confirmation that cut and paste is riff, it is also lazy and as a developing nation we cannot make progress by applying stone cast solutions, we need to see flexibility and dynamism in the products being developed for the market with an appreciation of the peculiar nuances.

A former governor of the Central Bank of Kenya, while giving a speech during a mortgage banks "back patting" event, asked what they were proud about when they only have a combined total of 32,000 active mortgages yet there are 70,000 new units developed every year, how then is the market bridging the gap?

As much as the statement above supports my argument it was unfortunately the trigger for a raid on members and staff of savings cooperative’s (SACCOs), which has since resulted in the current state of bad and non-performing loans in the commercial banking sector, well seems it still supports my argument as it again shows the lazy nature of our so-called bankers.

I learnt in kindergarten, yes I went through the Montessori system in the 70’s that was offered by the City Council before they introduced KHA which then converted them into nurseries! but I digress, never to put all my eggs in the same basket.

Our banks need to apply the available technology, that allows them to monitor a small kiosk the same way they can a "too big to default" large enterprise, to spread their eggs across a wider number of businesses.

As is an inherent trait in me I shall not lambaste and not provide a solution, if our banks offered more than just money to a business especially the MSME and included facilitation of operational infrastructure by for example partnering with a cloud software provider and capacity building through partnership with an institution of learning then pegging interest rates on training taken, investing in the current "too small not to default" businesses becomes feasible but first there needs to be a move away from being lazy and instead inculcating a culture of partnership.