Emergence of Government Banks

Govt-Owned Banks: A History of Banking in Kenya Documentary

Co-operative Bank of Kenya
The commercial banks the Central Bank regulated were all foreign owned, a situation that was part of the colonial heritage that the new government of independent Kenya was determined to change.

The country’s first fully locally owned commercial bank came on June 19th 1965 when the Co-operative Bank of Kenya was registered as a co-operative society initially to serve the growing farming community. Co-op Bank, as it came to be known, commenced operations as a bank on January 10th 1968 with a start-up capital of only KShs 255,000, supplemented by an interest-free loan from the government of KShs 214,000, repayable in ten years.

Co-op Bank’s first board of directors comprised: B. Kathanga, chairman; Charles Rubia, vice-chairman; J.K. Muthama; A.H. Kamau; M. Gheewalla; J.J. Musundi; D.N. Kuguru; S. Rintaugu and S. Mogire.

At the beginning Co-op Bank exclusively served farmers through the co-operative movement. Individuals were not allowed to hold accounts with the bank and it lacked its own nationwide branch network, relying instead on the main commercial banks as its agents throughout the country. This is a far cry from the bank’s position today where it is ranked the fourth-largest co-operative bank in the world – after Rabobank in the Netherlands, Co-operative Bank in Britain and Credit Agricole in France.

The first fully government owned bank – the National Bank of Kenya – was established on June 19th 1968 with John Michuki, then Treasury permanent secretary, as chairman of its board of directors. Other directors were Eliud Matu Wamae, Patrick Mwangola and Kipkurui Cherono. Two years later, Michuki was appointed executive chairman of the newly established Kenya Commercial Bank (KCB) and his place at the National Bank of Kenya was taken over by Stanley Githunguri.

The government set up Kenya Commercial Bank after buying a 60% stake in the National and Grindlays Bank and splitting the bank up into two banks – the Kenya Commercial Bank and Grindlays Bank International (Kenya). KCB took over all but two of the branches previously operated by National and Grindlays Bank in Kenya. It was those two branches that constituted Grindlays Bank International (Kenya).

Of the three newly established Kenyan banks, KCB quickly outpaced NBK and Co-op Bank mainly on account of having more capital and a substantially broader branch network. On August 25th 1971 KCB incorporated a subsidiary, Kenya Commercial Finance Company, and the following year acquired Savings and Loan (S&L) Ltd both of which enabled the bank to undertake some activities, such as mortgage finance, that the Central Bank did not at the time permit commercial banks to undertake. Other banks would soon thereafter follow in KCB’s footsteps and set up subsidiaries to undertake those financial transactions that they were not permitted to undertake as commercial banks.

In November 1976 the government assumed full ownership of KCB by buying out the 40% stake initially retained by Grindlays Bank of London.

The formation of the government-owned banks had the desired effect of speeding up the provision of affordable banking services to the majority of the population. It also prompted foreign owned banks to take measures to remain relevant in the Kenyan market and beyond.