CBK boss who tamed rogue banks but lost fight to save shilling

Outgoing Central Bank of Kenya (CBK) governor Patrick Njoroge. FILE PHOTO | NMG

Patrick Njoroge is expected to hand over the office of governor of the Central Bank of Kenya (CBK) to Kamau Thugge this week, leaving behind a legacy of a tough regulator who was not afraid of speaking truth to power.

Eight years ago, during his vetting before Parliament, many people, including MPs, would have been forgiven for thinking that the soft-spoken economist would be an easy customer.

Today, few hold this opinion, after taking stock of his tough regulatory stance on banks and digital lenders during his term.

He exits having ruffled more than a few feathers. Most bankers and market actors who spoke to the Business Daily said they would not miss him.

He feared none, spared none, and favoured no one, making friends and foes in equal measure.

In regulating banks, he set out his stall early, warning in his inaugural press briefing that he would not hesitate to crack the whip when called upon.

True to his word, the CBK shut down Dubai Bank, Imperial Bank and Chase Bank within nine months of the governor taking office.

These closures introduced Dr Njoroge, who had spent 20 years working at the International Monetary Fund (IMF), as a central banker out to shine a light in the dark corners of the sector.

Read: A look at Njoroge’s CBK tenure

But it also marked the beginning of his love-hate relationship with banks, many of who have without going on record, accused Dr Njoroge of coming up with tough regulations that painted them as scandals-in-waiting, who needed to be scouted every step.

While he may be many things to different people, he believes he is just him, at least going by the speech he delivered to Kenyatta University students during the 45th graduation ceremony in December 2018.

“In the end the only thing that remains is me. Do I defend my reputation valiantly? Am I the best version of myself at all times? Am I unwilling to compromise my reputation for some immediate benefit,” he posed in the speech.

His father wanted him to be an engineer but the ‘him’ in Dr Njoroge saw him study a Bachelor of Arts degree in Economics and he crowned it all with a Master of Arts degree and a PhD.

Dr Njoroge, in a 2021 interview with Yale University, where he got his PhD, said the greatest challenge he ever faced as a CBK governor was closing the mid-sized lender Chase Bank in April 2016.

“The bank was connected with virtually every corner of the country, in terms of the people, sectors and more. It did not help that this came a few months after we closed two other banks,” said Dr Njoroge.

A senior official at the Kenya Deposit Insurance Corporation told the Business Daily that “I was still in my pyjamas” when a call from Dr Njoroge to go and chain Chase Bank’s doors, which the CBK had just shut down.

This hint of regret over the closure of Chase Bank would inform a different stance when dealing with distressed lenders later in his term.

As some tier three banks suffered due to a flight of deposits to larger, well-capitalised rivals—ironically due to the fears caused by the three collapsed banks—the CBK stepped in with substantial liquidity support.

It also worked behind the scenes to encourage mergers and takeovers of small ailing banks by larger peers, setting the stage for the spate of acquisitions that have characterised the sector in the past few years.

Despite the early hiccups, he leaves a banking sector whose asset base has nearly doubled to Sh6.77 trillion from Sh3.67 trillion in mid-2015, and the value of outstanding loans rising by 78 percent to Sh3.85 trillion.

He also built on his predecessor Njuguna Ndung’u’s willingness to allow innovation in the financial sector, which has underpinned the growth in financial inclusion to 83.7 percent by 2021 from 75.3 percent in 2016.

The innovation has also enabled wider use of mobile and digital money products in the economy, where total registered mobile money accounts have risen to 73.72 million from 26.5 million in June 2015.

Dr Njoroge fared well in keeping inflation in check, with the cost of living measure straying outside the CBK’s preferred 2.5-7.5 percent levels in only two years of his term — 2017 and 2022 – when shocks related to drought, elections and external factors hit the economy.

He also steered the financial sector through the Covid-19 pandemic, and the interest rate cap regime, which unsettled banks and throttled private sector credit.

Another win for the governor was the seamless demonetisation in 2019 that saw the introduction of new-generation banknotes and coins, in contrast with troubled efforts to do the same in other countries such as India and Nigeria.

Aside from the bread-and-butter monetary policy work, the governor also found himself taking on external parties who he felt were dictating or interfering on his turf.

He defied Retired President Uhuru Kenyatta on calls to relax checks on cash transactions of at least $10,000 (Sh1.4 million). And even with similar calls from President William Ruto, the checks still stand.

Read: CBK signals costly loans after hiking rates to five-year high

In October last year, when Deputy President Rigathi Gachagua claimed in a TV interview that the country had run out of forex reserves, the outgoing CBK boss issued a rebuttal to the executive through a morning press release, providing what he termed the “correct position.”

And when members of the Kenya Association of Manufacturers complained about dollar shortages, Dr Njoroge told them to “understand that they are small” and go to the forex market to buy dollars “like everyone else.”

When the Treasury, under which CBK falls, tried to come up with a Financial Markets Conduct Bill in 2018 which it said was to protect consumers, Dr Njoroge was not afraid to equate it to a veiled attack on the CBK mandate.

He said the Treasury-sponsored Bill was a financial sector equivalent of “being asked to trade in your well-serviced SUV for a souped-up Subaru.” The Bill did not proceed.

“It may have flashy lights, stabiliser at the back, noisy exhaust and racing strength but it is still a Subaru. It is time for action. Make no mistakes, CBK is under attack,” he said.

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