By Bella Genga/Bloomberg
Kenya’s new tax on money transfers could slash liquidity levels in the financial services industry as banks hold on to cash to avoid extra costs, Barclays Bank Kenya Ltd. Chief Executive Officer Jeremy Awori said.
The so-called Robin Hood tax of 0.05 percent on bank transfers of more than 500,000 shillings ($4,960) that took effect July 1 is already creating friction in the movement of money in East Africa’s biggest economy, he told reporters in the capital, Nairobi.
Average daily interbank volumes fell to 11.2 million shillings last week, compared with 26 million shillings in the last week of June, according to central bank data. The interbank rate declined to its lowest since June 14.
“Banks are incentivized to conserve their own liquidity,” Awori said. “I’m not going to be actively lending to this bank, paying a tax, and at the same time borrowing from this bank if I have a mismatch. I’ll just keep the money.”
Awori sees a bigger impact on the smaller banks with lower liquidity levels. The tax is part of a raft of measures announced by Treasury Secretary Henry Rotich in his annual budget last month to fund record spending of 2.53 trillion shillings this fiscal year.
Banks are also concerned about a Treasury proposal to set up a Financial Markets Conduct Authority, which may wrest some powers from the central bank by creating a second regulator for the industry, Awori said.
“Excessive control and regulation does not help markets and it’s not going to help the industry,” he said.
