Doubling Down on Nonsense!

So the pretense to analysis by business reporting in the Daily Nation continues. My views on this are, I presume, known. As a financial institution, you simply cannot be borrowing so as to meet some regulatory capital requirement; you can only be able to borrow if your regulatory capital requirement so allows. But guess what, some reporters and/or editors at the Daily Nation will want you to think so.  Incredible!

It's Not About Love

In popular perception any overture from major external economic players is seen with the lens of how it will benefit us. There are instances when even external policy decisions are assessed in terms of how they will positively affect us. 

We obviously will be wrong if we swallow line hook and sinker all that those courting us tell us. in any case, as Adam Smith popularly quipped,  “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.

That is the case I make in my essay published in today's Business Daily, where I argue that we are masters of our destiny therefore we need to build our institutions as a way of assuring our future growth. We simply can't outsource institutions.     

Seeing A Thief Behind Every Bush!

Are there "Chinese Walls" that separate the Daily Nation from the Business Daily? Do the reporters - especially business reporters - working for these publications have any discussions on what they are working on? Even at the cafeteria? Do such discussions entail deep perspectives?
I ask all these questions because in many instances where the two publications cover the same story and one (usually the Daily Nation) takes a mischievous, often erroneous, angle and the other (the Business Daily) takes sober and analytical angle.
Take today's example. The Daily Nation has a piece on how Cooperative Bank  "borrows" KES 6.4 million to meet Central Bank of Kenya (CBK) rule". To a non-suspecting member of the public, there is nothing wrong with the story. But even a casual reflection by anybody with basic understanding of finance, banks and how they are regulated, this story is misleading right from the caption.
The innuendo is that Cooperative Bank is in trouble as is close to violating some CBK rule that the reporter is either too busy or too lazy to specify. Then, the bank goes on an external borrowing to enable it meet the rules. The innuendo ends there. This is characteristic of sensational reporting, especially on finance; and the usual narrative is that if banks are not out to "rob" you with high interest rates (seeing a thief behind every bush!), then they are in trouble - or about to be - one way or the other.
The rule that that the reporter was too busy - or too lazy - to specify is that from from 2015 banks are meant to maintain a core capital to risk weighted asset ratio of 10.5 percent from the current requirement of 8.5 percent.
Where is the problem with the story? One, the reporter doesn't seem to understand - at least that is not evident - what a balance sheet is. Otherwise there could have been an appreciation that when Cooperative bank borrows KES 6.4 billion (a liability) it will create an asset (loans to its customers) of an equivalent amount.
In basic arithmetic, for you to increase Core Capital/Risk Weighted Asset Ratio, you do not increase the denominator (which the Daily Nation story erroneously indicates is the case with Cooperative Bank's move). Instead you increase the core capital at a faster rate than you increase the assets. That is the correct  story that the Business Daily is telling us.
Interesting; isn't it?