Pres­sure piles on banks to re­view busi­ness mod­els

Ef­fi­ciency and in­no­va­tion will be key in driv­ing fu­ture growth for banks. If they do not take cog­ni­sance of this fact, we’ll lag be­hind, says CBK deputy gov­er­nor

The Star (Kenya) - - News - CON­STANT MUNDA @munda­con­stant

The Cen­tral Bank has piled pres­sure on com­mer­cial banks to relook at their costly busi­ness mod­els with a view to spe­cial­is­ing in their strong­est prod­uct seg­ments.

CBK deputy gov­er­nor Sheila M’Mbi­jiwe says it may not be sus­tain­able in the long-term for lenders to of­fer all prod­ucts ir­re­spec­tive of their size.

“Whether you are a small or a big bank, you are do­ing the same things. Is that re­ally re­al­is­tic or should banks have an un­der­stand­ing of what they are best in?” M’Mbi­jiwe said. “What is it about our bank­ing struc­ture? That we are all try­ing to do ev­ery­thing and maybe not do­ing many of those things well.”

There is lit­tle spe­cial­i­sa­tion in loan prod­ucts, where nearly all the 42 lenders of­fer prod­ucts in all broad cat­e­gories of cor­po­rate, busi­ness and per­sonal bank­ing.

US-owned Citibank is the only lender which spe­cialises in cor­po­rate bank­ing. CBK’s data in June showed that Giro Com­mer­cial Bank had no prod­uct in per­sonal bank­ing, while Mid­dle East Bank had no prod­uct in busi­ness bank­ing.

M’Mbi­jiwe says ef­fi­ciency and in­no­va­tion will be key in driv­ing fu­ture growth for banks. “Global competition is here. If ex­ist­ing banks do not take cog­ni­sance of this in­creas­ing recog­ni­tion, we could also go be­hind,” the CBK deputy chief told the bankers last Thurs­day. “There’s need to con­tinue to re­view cus­tomer propo­si­tion.”

The cap­ping of loan charges at four per cent above the base rate set by the CBK, with min­i­mum in­ter­est on term de­posits at 70 per cent of the base rate, is likely to hit hard lenders who largely de­pend on in­ter­est for profit mar­gins.

“The chal­lenge is how do we then grow our busi­ness …(and) di­ver­sify to the point where it’s a prof­itable busi­ness but also one that passes value to our cus­tomers,” CfC Stan­bic Bank chief ex­ec­u­tive Philip Odera said on Au­gust 31. “Cer­tainly, this has been a pe­riod where we have had to spend a lot more time as a bank just try­ing to un­der­stand our cus­tomers.”

/ENOS TECHE

CBK deputy gov­er­nor Sheila M’Mbi­jiwe with KCB chief ex­ec­u­tive Joshua Oi­gara dur­ing a press brief­ing on April 20

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