Political unrest in Kenya could cause rate rises

by Richard Kilner

Story link: Political unrest in Kenya could cause rate rises

The continuing political instability in Kenya, caused by disputed election results and ensuing violence, could soon have direct and negative consequences for the nation’s banking systems.

Credit lines extended to Kenyan banks by international financial institutions could soon be curtailed, unless a political way forward is found soon, banking analysts warned on Wednesday.

Meanwhile, Kenyan banks themselves are considering raising interest rates, a move which would most severely affect small scale borrowers.

The managing director of Barclays Bank Kenya, Adan Mohamed, explained that if the political situation is not resolved soon, rates would be likely to rise causing government to have to borrow locally.

Kenyan banking enjoyed a good year in 2007, with Barclays Bank Kenya seeing a strong performance with growth in annual profits of almost 10%.

However, Mohamed has warned that the prospects of 2008 will not be so pleasant, indicating that it could be a tough twelve months for the country, and will not be helped by ongoing political discord.

Professor Njuguna Ndung’u, governor of Kenya’s central bank, has stated that he is waiting for the response of commercial banks to the recent political violence prior to releasing a comprehensive report, warning that economic policy must be a solution to the problems the country faces, not an irritant.