CBK boss Who tamed Rogue banks but Lost shilling fight

This week, Patrick Njoroge is anticipated to transfer control of the Central Bank of Kenya (CBK) to Kamau Thugge, leaving behind a reputation as a tough regulator who wasn’t afraid to speak the truth to authority.

Many people, including MPs, could have been excused eight years ago for thinking the soft-spoken economist would be an easy client during his vetting before Parliament.

Few people do so now, in light of his term’s tough regulatory stance toward banks and online lenders.

He leaves after raising a lot of eyebrows. The majority of the market participants and bankers who spoke with the Business Daily said they wouldn’t miss him.

He had no fear of anyone, spared no one, and showed equal favors to both allies and enemies.

He warned in his first press briefing that he would not hesitate to crack the whip when necessary, laying out his ground rules for banking regulation early on.

Within nine months of the governor taking office, the CBK kept its promise and closed down Dubai Bank, Imperial Bank, and Chase Bank.

These closures positioned Dr. Njoroge, a central banker looking to shed light on the industry’s murky corners after spending 20 years working at the International Monetary Fund (IMF), as a central banker.

But it also signalled the start of his love-hate relationship with banks, many of which have accused him of coming up with stringent regulations that painted them as scandals waiting to happen and necessitated constant surveillance.

According to the speech he gave to Kenyatta University students at the 45th graduation ceremony in December 2018, he may be many things to many people, but he believes that he is just him.

“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 had wanted him to be an engineer, but the “him” in Dr. Njoroge led him to pursue a Bachelor of Arts in Economics before earning his Master of Arts and PhD to cap it all off.

In a 2021 interview with Yale University, where he earned his PhD, Dr. Njoroge stated that the mid-sized lender Chase Bank’s closure in April 2016 posed the biggest challenge he had ever encountered as a CBK governor.

“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.

According to a senior official at the Kenya Deposit Insurance Corporation, “I was still in my pajamas” when Dr. Njoroge called and told him to go chain the doors of Chase Bank, which the CBK had just closed down.

This glimmer of regret over Chase Bank’s demise would influence a different approach later in his term when dealing with troubled lenders.

The CBK intervened with significant liquidity support as some tier three banks suffered as a result of a flight of deposits to larger, better capitalized competitors—ironically as a result of the fears generated by the three failed banks.

Additionally, it worked covertly to promote mergers and acquisitions of smaller, struggling banks by larger competitors, paving the way for the recent wave of acquisitions.

Despite the early bumps, the banking sector he leaves behind has seen its asset base nearly double, from Sh3.67 trillion in mid-2015 to Sh6.77 trillion today, and its outstanding loan value increase by 78% to Sh3.85 trillion.

He also expanded on the willingness of his predecessor Njuguna Ndung’u to permit innovation in the financial sector, which was the driving force behind the increase in financial inclusion from 75.3 percent in 2016 to 83.7 percent by 2021.

The invention has also made it possible for the economy to use mobile and digital money products more widely. As a result, the number of registered mobile money accounts has increased from 26.5 million in June 2015 to 73.72 million as a whole.

Dr. Njoroge did well in controlling inflation; only in the years 2017 and 2022 of his term, when shocks related to drought, elections, and external factors hit the economy, did the cost-of-living measure deviate from the CBK’s preferred range of 2.5-7.5 percent.

Additionally, he guided the financial sector through the Covid-19 pandemic and the regime of interest rate caps, which unnerved banks and constrained credit for the private sector.

Another success for the governor was the orderly demonetization in 2019 that resulted in the rollout of new-generation banknotes and coins, as opposed to the problematic attempts to implement the same policy in other nations like India and Nigeria.

Along with his regular monetary policy work, the governor also found himself defending his territory from outsiders he felt were imposing their will or interfering with his affairs.

On requests to relax checks on cash transactions of at least $10,000 (Sh1.4 million), he disobeyed former president Uhuru Kenyatta. The checks remain valid despite similar requests from President William Ruto.

In response to Deputy President Rigathi Gachagua’s assertion that the nation had exhausted its foreign exchange reserves in a TV interview in October of last year, the departing CBK chairman issued a morning press release setting forth what he described as the “correct position.”

And when Kenya Association of Manufacturers members complained about a lack of dollars, Dr. Njoroge advised them to “understand that they are small” and go to the currency exchange to buy dollars “like everyone else.”

Dr. Njoroge did not hesitate to compare the Treasury’s attempt to introduce a Financial Markets Conduct Bill in 2018—under whose purview CBK falls—to a covert assault on the CBK mandate.

In the financial world, he compared the Treasury-sponsored Bill to “being asked to trade in your well-serviced SUV for a souped-up Subaru.” The Bill was abandoned.

“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.