Rate cap pushes banks to go dig­i­tal, cut costs

NIC chief ex­ec­u­tive says they must adopt mo­bile bank­ing and de­liver prod­ucts more cheaply fol­low­ing plum­met­ing of shares

The Star (Kenya) - - News - REUTERS/

Com­mer­cial banks are fo­cus­ing on mo­bile bank­ing to lower costs and build new rev­enue streams af­ter the govern­ment capped com­mer­cial lend­ing rates, bankers and an­a­lysts said. But they face sev­eral years of work to re­cover from the hit to prof­itabil­ity,

The cap im­posed last month lim­ited com­mer­cial rates to 400 ba­sis points above the Cen­tral Bank’s main rate, now 10 per cent. Banks pre­vi­ously charged 18-20 per cent or more on loans, help­ing cre­ate some of the most prof­itable in­sti­tu­tions in Africa.

The cap plum­meted bank shares and ex­ec­u­tives have been scram­bling to ad­just strat­egy. Many in­sti­tu­tions have fo­cused on mo­bile bank­ing to ex­pand busi­ness in a na­tion of 46 mil­lion peo­ple, where many peo­ple do not have a bank ac­count.

“We must go dig­i­tal and de­liver prod­ucts more cheaply,” said John Ga­chora, chief ex­ec­u­tive of mid-tier NIC Bank, echo­ing com­ments from len­ders both big and small.

But it will be tough match­ing earn­ings be­fore the cap. The average re­turn on eq­uity for listed banks was 21 per cent in 2015, the high­est in Africa, and com­pared with 18 per cent in South Africa and sin­gle dig­its for European and US banks.

Nairobi-based Stan­dard In­vest­ment Bank ex­pects re­turns to fall to 16 to 18 per cent af­ter the cap, which in­cluded a floor for de­posit rates.

For now, just two per cent of loans of­fered by Kenya’s 11 listed banks are is­sued via mo­bile plat­forms – a cheaper route that prom­ises to reach more cus­tomers. So it will take time to make up losses from the more tra­di­tional loan mar­ket, SIB said.

“That is not a two, three-year process but a longer process,” SIB bank an­a­lyst Fran­cis Mwangi said.

Kenya has pi­o­neered mo­bile trans­ac­tions. Mo­bile op­er­a­tor Sa­fari­com’s M-Pesa, launched in 2007, lets cus­tomers pay bills or trans­fer cash on the sim­plest hand­sets. Sa­fari­com also runs the M-Sh­wari bank­ing plat­form with pri­vately owned CBA Bank.

Such plat­forms cut staff and other over­heads in the loan process, and mean money is made even on loans of a few dol­lars.

“You may need one sales per­son and one per­son in­ter­nally if you can digi­tise,” NIC’s Ga­chora said, say­ing a tra­di­tional loan process usu­ally passed through three em­ploy­ees.

M-Sh­wari, launched in 2012, has 16 mil­lion cus­tomers and of­fers 70,000 loans a day – av­er­ag­ing Sh3,250 per cus­tomer. Top len­ders, even with big branch net­works, process 1,000 loans a day, al­though they are larger, bankers said.

KCB, Kenya’s big­gest lender by as­sets, wants to spin off its mo­bile bank­ing plat­form KCB M-Pesa, op­er­ated with Sa­fari­com, and with ad­di­tional sav­ing and bor­row­ing fea­tures over the more ba­sic trans­ac­tions app. So it has au­ton­omy to grow.

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