Banking Sector Reform, Kenya

Project Information

The project involved the development of  a Banking Sector Strategy for the Central Bank and Ministry of Finance in Kenya to help fill out a part of the broader Economic Recovery Strategy developed by the new government after assuming office in December 2003. OPM worked with a team of local experts to analyse major dimensions of Kenya’s recent banking performance and to develop a strategy for the sector’s longer-term development. The work included in-depth bank-by-bank assessments of the performance of all 43 of the mainstream banks, including comparisons of costs, productivity, branch penetration etc.  A significant outcome of this assessment included specific proposals to help reduce the high interest rate spreads in Kenya.  Moreover, OPM also analysed the problem of non-performing loans in the sector and developed detailed proposals for resolving this in the small number of mainstream banks where the problem was concentrated. The work also reviewed the positioning of near banks such as Savings and Credit Cooperative Organisations and Micro Finance Institutions to assess how these can more effectively fill gaps in banking provision left by the mainstream banks. This aspect of the work included specific proposals on how to develop a more complete regulatory structure for the banking system broadly defined.  Finally, some proposals were also developed to de-politicise the main Development Finance Institutions in Kenya and assist them in becoming more effective players in a broadened banking sector.