Kenyan banks go mobile to cut costs

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

The cap imposed last month limited commercial rates to 400basis points above the central bank’s main rate, now 10 percent. Banks previously charged 18 percent to 20 percent or more on loans.

The cap pummelled bank shares and executives have been scrambling to adjust strategy. Many institutions focused on mobile banking to expand business.

Earnings

“We must go digital and deliver products more cheaply,” said John Gachora, the chief executive of NIC Bank.

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

Standard Investment Bank (SIB) expected returns to fall to between 16 percent and 18 percent after the cap, which included a floor for deposit rates.

For now, just 2 percent of loans offered by Kenya’s 11 listed banks were issued via mobile platforms, so it would take time to make up losses from the more traditional loan market, SIB said.

Mobile operator Safaricom’s M-Pesa lets customers pay bills or transfer cash on the simplest handsets. Safaricom also runs the M-Shwari banking platform with privately owned CBA Bank.

M-Shwari had 16 million customers and offered 70 000 loans a day – averaging 3 250 shillings (R442) each. – Reuters