CREDIT RATING,BANKS,BONDS and SEPTEMBER


September 2008 was a good month.At least on the legislative and regulatory front.Two interesting developments that serve to deepen our financial markets occurred.

1.Credit rating regulations Gazetted by the Government.
Banks and other financial institutions can now share information on your payment(defaulting habits).Hopefully it will move to all businesses including your landlord.Any body with access to your credit information will be able to judge how honest you are on your promise to "send the check by Friday".
If it works like other countries it should make it easier for persons with good credit histories to get loans at good terms from their banks.Businesses with good history will find it easier to get supplier credit.
The flip side is that a bad credit rating will make it difficult to even rent a good house-(if ur prospective landlord sees that your score is bad, he may not want your tenancy).

2.Banks allowed to lend to each other using their securities as collateral
This may confuse those who don't deal with banks, how can a bank keep cash but run out of liquidity?Banks are like any business enterprise sometimes they need more cash than they keep at hand.When this happens, they have two ways of raising cash:-

A. Borrow money from the Central Bank (CBK)through REPOs(Repurchase agreements).These transactions involve the Commercial bank using its Treasury bonds and bills as security to borrow from the Central Bank

B.Borrow money from each other via the Interbank market
The new rules add a C option.

C.The new interbank master repurchase agreements.The transactions here are similar to REPOs the difference being that instead of having CBK and a bank transacting, we have a commercial bank to commercial bank transaction the borrowing bank gives securities to the lending bank as collateral for the lending.

Too bad the papers got it wrong and thought that everyone could trade bonds without going to the NSE.CMA came out with a clarification that this wasn't ain't so.

Rewind

I have blogged on a number of issues over the last 6 months.Some of them are now being debated in public ,other issues have melted into thin air and others are due to come up.
Safaricom

It turned out that the shareholder structure that we(you and i) hypothesised on this blog turned out to be true.The Guardian newspaper investigated Safaricom's shareholding structure and found the offshore parent of Mobitelea.

cellular-news.com has more on the saga here.

Banking Ammendment Act

The Minister for Finance gazetted this ammendment and borrowers are soon to enjoy the benefits.

NEMA's car Pollution ammendment

This is one Act that NEMA(National Environmental Management Authority) had to shelve.Inmplementing it would have been an enforcement nightmare .It would have requitred hundreds of Traffic police and NEMA inspectors to implement.It would also have taken out a lot of vehicles off the road.

Lack of adequate resources for enforcement are part of the problem with the new traffic rules.
I am sure it(NEMA Ammendment) will come back someday.

Monetary Policy Advisory Committee(MPAC)

The report on which the MPAC post was based is now under scrutiny.Specifically the issue of whether we need a strong shillin or weak shilling.With the shilling at Ksh 67, you can be sure some exporters are crying.
I'm a weak Shilling proponent But most people are for a strong shilling.Their argument is that we import Oil , so a strong shilling will keep the cost down.Consequently,domestic inflation will also be lower as a result.

They forget that the largest component of domestic oil price is TAX.