Financial services sector comes full circle

A KCB banking hall. Two thirds of Kenya’s bankable population is now able to access formal banking services. FILE

By George Ngigi, gngigi@ke.nationmedia.com

Posted  Thursday, December 12  2013 at  20:44
IN SUMMARY
KCB, Equity and Co-op ranked among world’s top 1,000 banks after industry went through major disruptions linked to gross mismanagement.

Financial services sector comes full circle


When Central Bank of Kenya (CBK) governor Njuguna Ndung’u took the podium to launch Family Bank’s mobile money product Pesamob, he carried with him an iPad and a hard copy of his speech.

“I usually carry back-up because I am risk-averse,” Prof Ndung’u said — a not so surprising position to take given the sensitivity of the sector he regulates.

In the 50 years of independence Kenya’s financial services sector has turned full circle —  rising, falling before rising from the ashes again like the proverbial Phoenix.

Last year’s ranking of three indigenous lenders KCB, Equity and Co-operative among the world’s top 1,000 banks was perhaps the clearest demonstration of how far Kenya’s banks have gone in terms of competitiveness.

The achievement came despite the fact that the industry has been through three major disruptions mainly linked to gross mismanagement of local banks.

Judging by growth and stability, the first 20 years of independence were some of the banking sector’s most robust— with the inclusion of indigenous Kenyans top on the agenda.

Between 1978 and 1990 seven new banks were registered besides 33 non-banking financial institutions.

But a weak regulatory regime and political interference soon rocked the boat leading to a series of bank collapses. A total of 12 banks collapsed between 1984 and 1989 shaking the industry to the core and taking more than a decade to fix.

Most of the collapsing banks had suffered years of undercapitalisation, insider lending and a heavy load of non-performing loans that ultimately resulted in insolvency.

It did not help that the majority of those who owned the financial institutions were mainly from the Kikuyu community — at the time in a frosty relationship with the then President Daniel arap Moi.

The list of banking moguls included billionaire Jimnah Mbaru who had founded three financial institutions — The Union Bank, Jimba Credit Corporation Limited, and Kenya Savings and Mortgages.

Mr Mbaru was the chairman in all the institutions except Credit Corporation where his friend and business partner former Tetu MP F T Nyammo was chairman.

Kenya responded to the crisis with the tightening of the regulatory regime and the setting up the Deposit Protection Fund to shield depositors from total loss in the event of future collapses.

This is a contributory fund into which all lenders deposit a predetermined fraction of revenues — proportionate to the amount of savings held.

Depositors are paid up to Sh100,000 in the event that their bank goes insolvent.