|KBA chair Etemesi, CBK governor Ndung'u (r)|
Electronic manipulation of the shilling for speculative gain and hoarding were dismissed as implausible.
Etemesi, the chairman of the Kenya Banker's Association, used KBA's 13th floor boardroom at International House to convene fellow industry chiefs to rebut the report which is set to be tabled in parliament tomorrow.
Among other things, the Report on the Decline of the Kenya Shilling, alleges massive upsurge in commercial banks borrowing from the Central Bank of Kenya to cash in on government securities.
It says three things caused the shilling's woes, economic factors and failures of certain human beings and institutions.
It zeroes in on human beings and institutions as more to blame.
Human being number 1 is identified as CBK governor Professor Njuguna Ndungu. The MPs chew him up.
He is accused of being asleep on the job, failure to act in time, and generally having a poor working relationship with commercial banks.
It calls for his sacking and recommends and tribunal to be set up by President Kibaki to investigate the man.
Ndungu and the Monetary Policy Committee are portrayed as toothless and need to be granted legislative spine.
The Bank Supervision Department is said to have failed.
Treasury is said to have failed to act when CBK wilted and is asked to grow a pair and act quickly and decisively in future.
Commercial banks were said to have borrowed money at lower rates from CBK and used it to make money from high interest rate government securities.
The report hits at banks for misbehaviour on the forex markets and calls for stiffer fines (Sh20million or 50 per cent of the value of "irregular" transactions") to be imposed on them.
Etemesi, KCB's Martin Oduor-Otieno, NIC's James Macharia, KBA's Habil Olaka, and the CEOs of I&M and Consolidated Bank took issue with the reports findings.
For starters they said the Sh600billion figure is taken out of context. It was cumulative and not an amount they just borrowed at once.
In any case, they pointed out, CBK's core capital is only Sh5billion therefore it cannot lend out 120 times the equivalent of its capital.
Moreover, the banks themselves have a combined core capital of Sh259billion meaning they cannot be in Sh600billion debt...that would mean they are insolvent.
In any case, Etemesi added, what banks borrow is made against their holdings of government securities.
The borrowing, he said, is overnight and has to be repaid the following day. Therefore, banks could not have borrowed overnight to lend out money for 91-day Treasury Bills.
In any case, the average figures in 2011, showed that while commercial banks borrowed an average of Sh4billion from the CBK Discount Window, they borrowed more, Sh12billion amongst themselves a day on the Interbank market.
That said, the Sh600billion cumulative was still way higher than what they took in 2010.
The bankers said this is because liquidity was tight in 2011 necessitating them to latch onto the discount window.
They ruled out arbitrage on the Discount Window and the Interbank where potentially a bank could borrow from CBK at a low rate and lend on the overnight interbank market at a higher rate.
That is illegal Etemesi said.
On hoarding forex, the bankers said their own customers decided to keep the cash in foreign currencies when they realized the shilling was under pressure.
The report will be tabled in parliament tomorrow.