Nipate
Forum => Kenya Discussion => Topic started by: Omollo on August 24, 2016, 07:15:56 PM
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I am still digesting this. I want to establish that it is not some act playing for the gallery.
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How will it affect bank profits? Reducing interest to base rate+4% is huge.
This will surely trigger banks to merge for survival through economy of scale.
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I just heard you can now buy bank shares for spit. There are so many on offer right now. Way to go. Let some of them relocate to other countries and face stiff oversight.
Banks became Chang'aa business in Kenya. Setting up a Chang'aa selling den is the easiest job creation initiative in Kenya. Next to it is a bank
How will it affect bank profits? Reducing interest to base rate+4% is huge.
This will surely trigger banks to merge for survival through economy of scale.
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Brave move. Let this go on for 1yr at least. Banks have shown they can innovate themselves out of trouble. They need to work hard now. Improve efficiency, deploy more technology, lower cost and find ways & means to be profitable from the restricted margins. The key is to innovate. Those that fails - will go belly up. @14% that still is a good deal..goK should crack the pressure down to 10%...and bankers should demand more reform in collatoral end...quick turn around of cases, more courts, more security in title deeds.
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Will this new 14.5% cap on interest rate affect existing loans ama its only on new loans from now onwards ?
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Depend. If the rate is flexible - like most loans - then sure. If it is fixed - then no.
Will this new 14.5% cap on interest rate affect existing loans ama its only on new loans from now onwards ?
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Now I am glad the banks have not yet seen fit to hand this to a professional spin doctor.
Mr. Olaka lost his space once the law was enacted. From the time the law went to Uhuru to this moment, the banks should have hired a spin doctor. See below how Olaka is ruining it all for the banks. Such a statement which seeks to give the impression that the interests shall continue to remain high regardless of the new laws may be technically correct but a terrible selling point. Just shows the banks as no better than scrooge and defiant to the end.
Some people just don't have it in them, do they?
Commercial banks will continue charging the existing interest rates on loans until after the new law capping the rates becomes operationalised, Kenya Bankers Association CEO Habil Olaka said.
This follows the signing into law of the Banking (Amendment) Bill by President Uhuru Kenyatta on Wednesday that requires banks to charge not more than 4 per cent of CBK’s base lending rate that currently stands at 10.5 per cent.
More on this: Why I signed interest rates bill into law - Uhuru Kenyatta
“If that new law will require the existing loans to be re-priced, so be it. If it will only apply to new laws going forward, so be it, but whichever way it comes out banks will have to comply,” he said.
Olaka said that it is still not clear when the law will take effect because it has to undergo several stages before being gazetted.
“It is difficult to give a time frame but from previous processes we know that it takes about seven days for the Attorney General to gazette an Act and once it is gazetted it may take two weeks or so for it to become operational,” he said.
The CEO made the remarks on Thursday at the Serena Hotel while responding to the signing into law of the Banking Amendment Bill.
He said that banks will now be forced to be more innovative to cushion themselves in the likely event of the new law having adverse effects on their operations.
“I think banks will have to relook at their business models and leverage on technology to ensure that the operational costs that have been making provision of services high are brought down,” Olaka said.
Read: Kenyans happy with new Banking Act, bankers spell doom for businesses
But he said that banks will have to take enhanced risks in developing innovative products that offer no guarantee on returns once the law takes effect.
Olaka said that given this reason, most banks are likely to take the easier way out by lending to the low risk borrowers and avoiding the high risk borrowers.
"We therefore have to remain responsible as we bring in the SMEs because the high-risk borrowers are the main drivers of the economy growth in the country," Olaka said
http://www.the-star.co.ke/news/2016/08/25/interest-rates-law-does-not-affect-existing-loans-says-bankers_c1409489
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Most banks in Kenya operate like loan sharks anyway- they'll just sack more staff, higher wait times for customers. .. charge higher rates for transactions/annual membership rates etc. to keep afloat much in the way most of Kenya's economy are black market commodities eg. expired drugs, food, goods etc. Customers will have to wait for 3 hours as opposed to the current 1 hour and pay hefty fees per transaction/membership to who knows how innovative they plan to get.
This capping is ill-advised.
Banks would need to operate incognito for commercial/industrial/personal loans to stay afloat. Situation is like an abortion clinic. Even though abortion is illegal there are girls bleeding from botched self abortion attempts. When supply doesn't meet demand there are consequences. Unless banks want to be poached by foreign owners who can supplement lost doe for a few years- expect more underground activity- as opposed to providing incentives to keep interest rates down with the backdrop of good market/share/stock practices/good govt re/deregulation policies.
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Mind you banks are commercial entities and set interest rates according to the market and its competitors. They don't have to comply to this bill if there's reasonable evidence to suggest it'll drive them bankrupt/hurt operations. This bill can't be enforced. They can sue the govt for compensation. Unfortunately Uhuru owns the courts and can buy judges to unlawfully imprison anyone who stands in his way. Best to just go underground.
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Banks are already doing all those things you mention. They have laid off staff and continue to do. It is impossible to find a 40-year-old teller in the bank. They hire young attractive girls and boys and once they get their first wrinkle they get fired pronto by some crap called golden handshake.
They finance all the illicit businesses in the Crime Dictionary. Money laundering is the biggest business which they work alongside "supermarkets" that have mushroomed everywhere.
So when it comes to profitability, nothing in the said act will diminish their money haul. I expect them to comply but what is uncertain is the role CBK will play.
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40 year olds give out loans, assess market risks etc. most of what a bank does is behind the teller. Teller workers even in Australia are 20 something year old students working part-time who look like air hostesses but get paid minimum wages. .. less than factory workers or cashier workers at a supermarket. Banks can get away with it because most teller workers are economics/commerce students in it for work experience. Typically at a teller shift you have 1 old person (old lady- trainer/mentor) and the rest work experience students.
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Banks we just be fine. The market overreacted on this . What is going to happen is the banks will binge on T bonds. Case in point is when uhuru was signing the interest capping bill, the cbk was auctioning 10yr 25b t- bond at 15.039% coupon https://www.centralbank.go.ke/index.php/treasury-bond-results/lates-resultts. Why would a bank lend to individuals at 14.5% instead of government at 15%? However that rate will start going down as banks increasingly compete for t-bonds and t-bills bringing the rate lower.
The segment of lending that's growing is mobile loans which aren't being capped this will continue to grow. Those loans are expensive and short term, no serious business can grow by borrowing short term. After next year general election this law will have to reviewed and the government to address the serious fundamental problems with the economy and financial sector.
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Depend. If the rate is flexible - like most loans - then sure. If it is fixed - then no.
Will this new 14.5% cap on interest rate affect existing loans ama its only on new loans from now onwards ?
Banks say awaiting guidelines on existing borrowers after rate cap (http://www.nation.co.ke/business/Banks-say-awaiting-guidelines-on-existing-borrowers/996-3357446-12ot5kx/index.html) the bastards !!!!
By GEORGE NGIGE
The Kenya Bankers Association has said it is awaiting rules from the State to establish whether those already with loans will be affected by the new interest cap law.
It remains to be seen how the banks will navigate the controversial issue of migrating current loans to the new interest rates regime.
Most borrowers are currently on a flexible interest rates regime — meaning their interest rates vary according to the prevailing market conditions — and therefore the expectation that they will be moved to the new regime of a maximum 14.5 per cent once it comes into force.
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Those loans are expensive and short term, no serious business can grow by borrowing short term.
Investment loans are short term. Like with property investment portfolios, banks offer loans ranging from 2 to 7 years. Banks have separate interest rates and loan requirements for commercial/investor portfolios. Typically maximum 7 years for property investment loan requiring a higher down payment like 30% and higher interest rates near double. Property investors buy dilapidated properties, renovate, then sell usually within 2 years. Liquidating the property or give it to the bank should it not perform well isn't that much of a loss for property investors. It's not unusual to hear of couples owning 5+ investment properties these days after selling some, losing some properties. It's the best way to develop a sufficient lump sum for early retirement. I have friends who are retired now in their 30s since they began investing in property in their early 20s.
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In my prediction, there is going to be a serious shortage of money which will cause a contraction of the growing economy. Banks lend at higher rates because of risks associated with the growing economy.
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Those loans are expensive and short term, no serious business can grow by borrowing short term.
Investment loans are short term. Like with property investment portfolios, banks offer loans ranging from 2 to 7 years. Banks have separate interest rates and loan requirements for commercial/investor portfolios. Typically maximum 7 years for property investment loan requiring a higher down payment like 30% and higher interest rates near double. Property investors buy dilapidated properties, renovate, then sell usually within 2 years. Liquidating the property or give it to the bank should it not perform well isn't that much of a loss for property investors. It's not unusual to hear of couples owning 5+ investment properties these days after selling some, losing some properties. It's the best way to develop a sufficient lump sum for early retirement. I have friends who are retired now in their 30s since they began investing in property in their early 20s.
That's Australia not kenya. The short term mobile loans I am talking about are only up to 6 months.
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David Ndii take on the interest capping bill http://www.nation.co.ke/oped/Opinion/interest-rates-bill-politics-will-not-fix-economic-problems/440808-3359274-a4wh4nz/index.html . I agree with him about addressing the cause of high interest rates instead of arbitrarily capping the rates. I especially like his take on mobile money.
"Whether mobile phone micro-loans survive will depend on whether banks can get away with disguising interest as fees. If, however, the regulators enforce strict compliance, the product may become unviable. This would be a big blow to the micro-enterprise economy. The political blowback would be vicious"
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Yes hk, the VIABILITY of lending to small fish is our immediate danger. For instance "mkopo wa salo" must include considerable risk charges which impact the rates. Many products may simply be pulled off the table. On the other hand I don't fully trust the bankers raking in billions while whining about the environment. Innovation may well make the difference, our competitive sector being the beauty. We shall see.
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My understanding is that the act simply sought to limit the profits the banks gorge themselves beyond the CBK rates. Thus if CBK raises it to 20 we shall expect 24% and if it brings it down to zero, we shall expect 4.
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BANKING SECTOR EXPLOITING KENYANS
by Billow Kerrow
President Uhuru’s signing of the bill capping interest rates charged by banks will be his signature legacy, better than the SGR. Its a momentous decision that will change the fortunes of many Kenyans who have suffered under the choking exploitation of the banks. All the talk that his action will hurt poor Kenyans more is hogwash, and a desperate move by our bankers to intimidate Kenyans. Banks are licensed by the Govt as a service provider, and must appreciate that they are bound by the interests of Kenyans and not their greed. The President should now warn CBK and Treasury to operationalize it expeditiously, and enforce it. He should tell the banks that they must work within the business environment created by Govt, within the economic policies set by it and work in the best interest of Kenyans. Here are the reasons I agree with the President:-
Kenya is a goldmine for banks. In 2013, three of our banks earned the highest return on capital in the world! Equity at 55%, NBK at 53% & KCB at 40%. The average return in Africa was 24% which was double that of the rest of the world. Europe’s was only 4%! Folks, we work just for banks!
Our banks made a staggering shs 135 billion in profits last year, whilst most of our business made huge losses, including most of the blue chip companies listed on NSE. In 2014, they made shs 140 billion! Yet, 60% of their profits is from interest on loans & advances, at least sh 80 billion!
We have the highest number of banks per head in Africa….it must be the attraction of the huge returns! 44 commercial banks; 12 Microfinance institutions; & 180 deposit-taking SACCOs.
The total non-performing loans (NPLs) to the total loans and advances ratio in Kenya is 6.3%, fairly low compared to many countries in Africa; only South Africa & Nigeria have lower rates. Hence, it cannot be an excuse for the high interest rates. The doubtful loans, or NPLs as they call it in banks, at March 2016 was shs 170 billion against gross bank loans of sh 2.2 trillion! in fact, the so-called risk sector such as personal/household loans is only sh 32 billion.
The balance sheet value of the 44 commercial banks last year was sh 3.6 trillion; the shareholder funds in all these banks was only sh 543 billion, most of it retained profit! Are Kenyans helping? Our deposits were sh 2.6 trillion, far more than their advances. Currently, interest on deposits represents only 36% of their total expenses….they nearly enjoy free money!
The bill proposes higher deposit rates, at 70% of the lending rate, in order to reduce the gap between the rate they lend at, and the rate they take deposits. Currently, you deposit your money at around 5% and borrow at 18%. That gap will now reduce significantly. This law will encourage more Kenyans to save and deposit their money in commercial banks, thereby increasing our national savings ratio, and expanding their total deposits, more advances and better liquidity. Our savings ratio at 11% is one of the lowest in Africa, worse than Uganda & Tanzania and most low income countries that average well above 20%.
Out of the sh 2.2 trillion advances, sh 332 billion is to the SMEs. If this sector is risky as the banks allege, they would not have given such a huge amount of loans. Most of these advances are performing well. After all, the loans to SMEs represent only 23%. There is no such thing as a risky sector; banks must assess risks for each customer and not punish Kenyans indiscriminately. Global rejection of unsecured loans is punitive, and primitive. CBK must protect customers from such unfair, unethical practices designed to hit back at Kenyans.
Over 76 countries cap interest rates, including Europe, US, Africa and Asia, including 24 countries in Sub-Saharan Africa. Nothing strange about such a law; lets move on!. Meanwhile, MPs should delve deeper to direct flow of capital to productive sectors through regulation too!
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Very impressive and compelling plain English compared to hk's economic hacks.
BANKING SECTOR EXPLOITING KENYANS
by Billow Kerrow
President Uhuru’s signing of the bill capping interest rates charged by banks will be his signature legacy, better than the SGR. Its a momentous decision that will change the fortunes of many Kenyans who have suffered under the choking exploitation of the banks. All the talk that his action will hurt poor Kenyans more is hogwash, and a desperate move by our bankers to intimidate Kenyans. Banks are licensed by the Govt as a service provider, and must appreciate that they are bound by the interests of Kenyans and not their greed. The President should now warn CBK and Treasury to operationalize it expeditiously, and enforce it. He should tell the banks that they must work within the business environment created by Govt, within the economic policies set by it and work in the best interest of Kenyans. Here are the reasons I agree with the President:-
Kenya is a goldmine for banks. In 2013, three of our banks earned the highest return on capital in the world! Equity at 55%, NBK at 53% & KCB at 40%. The average return in Africa was 24% which was double that of the rest of the world. Europe’s was only 4%! Folks, we work just for banks!
Our banks made a staggering shs 135 billion in profits last year, whilst most of our business made huge losses, including most of the blue chip companies listed on NSE. In 2014, they made shs 140 billion! Yet, 60% of their profits is from interest on loans & advances, at least sh 80 billion!
We have the highest number of banks per head in Africa….it must be the attraction of the huge returns! 44 commercial banks; 12 Microfinance institutions; & 180 deposit-taking SACCOs.
The total non-performing loans (NPLs) to the total loans and advances ratio in Kenya is 6.3%, fairly low compared to many countries in Africa; only South Africa & Nigeria have lower rates. Hence, it cannot be an excuse for the high interest rates. The doubtful loans, or NPLs as they call it in banks, at March 2016 was shs 170 billion against gross bank loans of sh 2.2 trillion! in fact, the so-called risk sector such as personal/household loans is only sh 32 billion.
The balance sheet value of the 44 commercial banks last year was sh 3.6 trillion; the shareholder funds in all these banks was only sh 543 billion, most of it retained profit! Are Kenyans helping? Our deposits were sh 2.6 trillion, far more than their advances. Currently, interest on deposits represents only 36% of their total expenses….they nearly enjoy free money!
The bill proposes higher deposit rates, at 70% of the lending rate, in order to reduce the gap between the rate they lend at, and the rate they take deposits. Currently, you deposit your money at around 5% and borrow at 18%. That gap will now reduce significantly. This law will encourage more Kenyans to save and deposit their money in commercial banks, thereby increasing our national savings ratio, and expanding their total deposits, more advances and better liquidity. Our savings ratio at 11% is one of the lowest in Africa, worse than Uganda & Tanzania and most low income countries that average well above 20%.
Out of the sh 2.2 trillion advances, sh 332 billion is to the SMEs. If this sector is risky as the banks allege, they would not have given such a huge amount of loans. Most of these advances are performing well. After all, the loans to SMEs represent only 23%. There is no such thing as a risky sector; banks must assess risks for each customer and not punish Kenyans indiscriminately. Global rejection of unsecured loans is punitive, and primitive. CBK must protect customers from such unfair, unethical practices designed to hit back at Kenyans.
Over 76 countries cap interest rates, including Europe, US, Africa and Asia, including 24 countries in Sub-Saharan Africa. Nothing strange about such a law; lets move on!. Meanwhile, MPs should delve deeper to direct flow of capital to productive sectors through regulation too!
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I think HK long standing view is that the banking/financial sector have also done lots of great things -lots of innovation- we are probably at bar with second world or even developed country - when it comes to financial sector maturity.Fin accessibility & inclusion has been sorted out - now nearly everyone has a bank account. The vexing issues has remained - high interest rate. We need to find ways & means to get cheaper & easily available credit.
Anyway I think uhuru should treat this as experimentation policy - if it doesn't work - roll it back soon - if it works - that would be to quote Kerrow - his signature legacy.
Very impressive and compelling plain English compared to hk's economic hacks.
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Very impressive and compelling plain English compared to hk's economic hacks.
I dont know whether I am the hack or David ndii who I quoted . Billow kerrow put forward compelling evidence on return on capital for local banks and their out sized margins. Bottomline if the CBK is borrowing at 15% don't expect a regular mwananchi to get a loan for 14.5% unless maybe the market is telling us that the CBR will go up soon. I think we can all agree in a perfect world price caps aren't the best since the government under pressure can cap prices distorting the market which can lead to shortages.
Even at 14.5% that's a little bit too high. So really Billow kerrow should tell us how to lower the CBR from 10% to about 6% just about where the inflation rate is. In my humble opinion one way is for the CBK to start borrowing from regular citizen via mobile money by initiating the M-akiba.
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The capping of interest spread is affecting credit availability. This doesn't portends well for the economy especially the riskier borrowers http://www.businessdailyafrica.com/Private-sector-borrowing-slows-down-to-10-year-low/539546-3466874-p4d82hz/index.html . The treasury has been dithering on M-akiba which is the one of the possible market based solution to lowering of interest rates. Meanwhile the government is having trouble raising 30b going by last week under subscription probably buyers trying to push the government to pay better rates. https://www.centralbank.go.ke//uploads/historical_treasury_bond_results/739138275_FXD3-2007-15%20&%20FXD1-2008-20%20Dated%2028.11.2016.pdf .
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It's too early to make a judgement call. I think most banks are re-configuring their lending with new reality. GoK should stick with this for next 1 or 2yrs. M-Akiba should be going live anytime soon. But like we said it won't be an quick up-take. Mwananchi need to be sure of the ability to cash out their m-akiba.
The capping of interest spread is affecting credit availability. This doesn't portends well for the economy especially the riskier borrowers http://www.businessdailyafrica.com/Private-sector-borrowing-slows-down-to-10-year-low/539546-3466874-p4d82hz/index.html . The treasury has been dithering on M-akiba which is the one of the possible market based solution to lowering of interest rates. Meanwhile the government is having trouble raising 30b going by last week under subscription probably buyers trying to push the government to pay better rates. https://www.centralbank.go.ke//uploads/historical_treasury_bond_results/739138275_FXD3-2007-15%20&%20FXD1-2008-20%20Dated%2028.11.2016.pdf .
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Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones.
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Yeap the democratisation of borrowing...
Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones.
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Must the government borrow from the poor?
Yeap the democratisation of borrowing...
Finally M-akiba to be launched on thursday https://www.standardmedia.co.ke/business/article/2001233514/treasury-to-launch-sh5-billion-mobile-traded-bond-on-thursday . If this is true , it will be one of the hallmarks of uhuruto administration. It'll finally be possible to diversify government borrowing from banks and insurance companies. This will eventually lower the interest rates (scrap the interest spread) and finally open up the credit market to more companies especially small ones.
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Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.
Must the government borrow from the poor?
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I am not comfortable with this. What if the government defaults?
Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.
Must the government borrow from the poor?
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I am not comfortable with this. What if the government defaults?
Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.
Must the government borrow from the poor?
Looks like the gava is working really hard getting as much money as possible:
Kenya borrows total of $1.55 billion in three syndicated loans (http://af.reuters.com/article/investingNews/idAFKBN16R18M-OZABS)
Tue Mar 21, 2017
NAIROBI (Reuters) - Kenya borrowed $800 million in a syndicated loan from four international commercial lenders, part of a package totalling $1.55 billion.
The country also got a $500 million syndicated loan with Cairo-based African Import Export Bank (Afreximbank) and the Trade Development Bank (TDB), Afreximbank said. Another $250 million syndicated loan was agreed earlier with TDB.
"The facility, for which Afreximbank and TDB acted as joint mandated lead arrangers, is part of a $1.55 billion debt package of three facilities being arranged and raised in parallel," Afreximbank said in a statement issued on Monday.
Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.
President Uhuru Kenyatta, who faces re-election in August, dismissed criticism last week of his accelerated borrowing, saying the money was funding development .
In January, the Nairobi government picked Standard Chartered, Standard Bank, Citi and Rand Merchant Bank to lead the $800 million syndicated loan.
"We signed and have already drawn down" the money, Kamau Thugge, principal secretary at the ministry of finance, told Reuters.
The various tranches of the total loans of $1.55 billion comes with different maturities of two to 10 years, Afreximbank said.
These idiots seem to want to bankrupt the country.
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I am not comfortable with this. What if the government defaults?
Must the poor lend to gov. Yeah if they can afford it. Gov offers the best saving rates. If the poor want to save something for a rainy day - best park it in m-Akiba - than under the mattress or in a bank.
Must the government borrow from the poor?
Looks like the gava is working really hard getting as much money as possible:
Kenya borrows total of $1.55 billion in three syndicated loans (http://af.reuters.com/article/investingNews/idAFKBN16R18M-OZABS)
Tue Mar 21, 2017
NAIROBI (Reuters) - Kenya borrowed $800 million in a syndicated loan from four international commercial lenders, part of a package totalling $1.55 billion.
The country also got a $500 million syndicated loan with Cairo-based African Import Export Bank (Afreximbank) and the Trade Development Bank (TDB), Afreximbank said. Another $250 million syndicated loan was agreed earlier with TDB.
"The facility, for which Afreximbank and TDB acted as joint mandated lead arrangers, is part of a $1.55 billion debt package of three facilities being arranged and raised in parallel," Afreximbank said in a statement issued on Monday.
Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.
President Uhuru Kenyatta, who faces re-election in August, dismissed criticism last week of his accelerated borrowing, saying the money was funding development .
In January, the Nairobi government picked Standard Chartered, Standard Bank, Citi and Rand Merchant Bank to lead the $800 million syndicated loan.
"We signed and have already drawn down" the money, Kamau Thugge, principal secretary at the ministry of finance, told Reuters.
The various tranches of the total loans of $1.55 billion comes with different maturities of two to 10 years, Afreximbank said.
These idiots seem to want to bankrupt the country.
The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably. The loan tranches are 2yr to 10yrs.
What I have problem with is our low absorption of development funds. And inflated prices of the projects due to sometimes ridiculous high prices of land for example. But at least now there's capping of how much the government can pay for land.
Kisero has it right here on M-akiba http://www.businessdailyafrica.com/analysis/Why-M-Akiba-is-a-game-changer/539548-3861854-isl8wr/index.html . The late 1890 and early 1900 america issued railway bonds that built and opened up america. M-akiba as a ring fenced infrastructure bond can be used to build crucial infrastructure in kenya.
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The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably.
(1) Does the government have expenditures other than loan repayments?
(2) Just a couple of years ago, the government had to repay a similar syndicated loan. How did it comfortably do that? From tax revenues?
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The country isn't getting bankrupt . Kenya is $70b economy, if in 2016 economy grew at pace of 5.5% that's about $2.4b added to the economy, if out of that $2.4b the government collect tax of 16% only(Vat) that's about $300m . Clearly the government can pay back comfortably.
(1) Does the government have expenditures other than loan repayments?
(2) Just a couple of years ago, the government had to repay a similar syndicated loan. How did it comfortably do that? From tax revenues?
1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.
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1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.
I see. Here's where I got lost: Presumably your $300m that will be used to comfortably pay debts is part of total KRA money. I also read that:
Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.
My understanding of "deficit" is that expenditure exceeds income.
I see your point about the payment with Eurobonds. Mine was that the government paid debt off by taking on more and new debt---not by collecting tax of 16% only and using that to comfortably pay.
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1. Of course it does, Kra collected $12b last year . Government expenditure doesn't necessarily grow at the same rate of GDP growth.
2. It paid with euro bond proceeds. The syndicate loan was of much higher interest and was paid off using Euro bonds. Treasury rolls over debt all the time by issuing new debt to pay for maturing debt so long as it has access to debt markets. What would concern me is what the funds are used for and the interest on the debt if its lower than 10%(CBR)its ok.
I see. Here's where I got lost: Presumably your $300m that will be used to comfortably pay debts is part of total KRA money. I also read that:
Kenya had set out to raise 150 billion shillings ($1.46 billion), partly to plug a fiscal deficit equal to 9.7 percent of gross domestic product in its budget for the fiscal year to June 2017.
My understanding of "deficit" is that expenditure exceeds income.
I see your point about the payment with Eurobonds. Mine was that the government paid debt off by taking on more and new debt---not by collecting tax of 16% only and using that to comfortably pay.
Deficit of a fiscal budget is "budgeted" expenditure(recurrent and development minus collected revenue(excluding borrowed money). A deficit in our case means the government intends to spend more money than its collecting. And most of deficit financing is for development which should result in growth that lead to more tax collection to pay that debt or cheaper refinancing of that debt.
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Deficit of a fiscal budget is "budgeted" expenditure(recurrent and development minus collected revenue(excluding borrowed money). A deficit in our case means the government intends to spend more money than its collecting. And most of deficit financing is for development which should result in growth that lead to more tax collection to pay that debt or cheaper refinancing of that debt.
I see your point. Mine is that borrowing to "plug a fiscal deficit" and "spend more money than its collecting" do not suggest money lying around, to be used to comfortably pay off debts.
Funding development which should lead to .... sounds very good indeed. Would you happen to know what development will be funded by this one? Come to think of it, would you happen to know what development was funded by the bulk of Eurobond money and how it has led to ...?
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It enough to know the economy grew by 6% and tax collection by 15% (or about). Those are impressive figures. Of course we could double that growth - and that should be our focus. And I believe we can double that growth by borrowing more to build infrastructure.
I see your point. Mine is that borrowing to "plug a fiscal deficit" and "spend more money than its collecting" do not suggest money lying around, to be used to comfortably pay off debts.
Funding development which should lead to .... sounds very good indeed. Would you happen to know what development will be funded by this one? Come to think of it, would you happen to know what development was funded by the bulk of Eurobond money and how it has led to ...?