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