Judging by developments in 2016, keen followers of the Kenyan banking
industry believe 2017 could be a year of reckoning being the first full
year in which the lenders will contend with interest rate caps, low
public confidence and a cyclical slowdown of the economy due to upcoming
elections. TEA GRAPHIC | FILE
By GEORGE NGIGI
In Summary
- This is an industry that has enjoyed more than a decade of robust growth in profits and assets.
- 2016 is the year in which one more bank followed the two in the previous year down the path of collapse, bad loans spiked, scandalous transactions were laid bare.
- Job cuts, salary freezes, consolidation and increased adoption of technology, especially mobile banking, are expected to dominate the industry’s agenda.
Judging by developments in 2016, keen followers of the
Kenyan banking industry believe 2017 could be a year of reckoning being
the first full year in which the lenders will contend with interest rate
caps, low public confidence and a cyclical slowdown of the economy due
to upcoming elections.
The pain is expected to be especially sharper because this is an
industry that has enjoyed more than a decade of robust growth in
profits and assets before it was hit by the shocker of interest rate
caps.
Besides, 2016 is the year in which one more bank followed the
two in the previous year down the path of collapse, bad loans spiked,
scandalous transactions were laid bare and financial statements were
queried denting public confidence in the industry.
Job cuts, salary freezes, consolidation and increased adoption
of technology, especially mobile banking, are expected to dominate the
industry’s agenda reversing the fortunes of a sector that has been a
source of new jobs.
The collapse of Chase Bank in March, coming on the back of
Imperial Bank and Dubai Bank closure, set the industry sliding on a
slippery path that saw the public withdraw their funds from suspected
weak banks in a rush resulting in a liquidity crisis.
Faced with low cash positions, most of the lenders cut back on
lending. “The main thing was what happened to Chase Bank causing
liquidity shortfalls across the industry which resulted to reduced
lending,” said Francis Mwangi, head of research at Standard Investment
Bank. He noted that this year’s challenges will carry on to the new
year.
Lending to the productive private sector grew at the slowest
pace recorded in a decade as banks struggled with low cash levels and
investors shelved expansion plans in a harsh economy.
The industry faced the challenge of dealing with social media rumours on looming collapses which kept haunting small lenders.
Manipulated books
Disclosures that National Bank had manipulated its books to
cover for insider lending — as was the case with Chase Bank and the
immediate issuance of a circular by the central bank calling for
auditing of all insider lending in the industry — further fuelled public
mistrust of the sector.
“There was skewed distribution of liquidity because some banks
had been profiled and so customers were panicking and stashing liquidity
in some specific banks,” said Habil Olaka, the chief executive of Kenya
Bankers Association. Businesses and households struggled to meet their
loan obligations in a slow economy, resulting in bad debts piling up to a
record $2.07 billion as at the end of September.
When Parliament in July passed a Bill proposing to cap interest
rates the odds were already staked against the banking industry but its
executives didn’t seem to notice the tide change.
Bankers had successfully fought off previous attempts to
regulate loan prices, with economic experts and the executive in their
corner.
President Uhuru Kenyatta’s decision to sign the Bill into law in
August caught the bankers and market players by surprise, throwing them
into a spin. Investors dumped the previously treasured banking stocks
at the Nairobi Securities Exchange leading to huge price falls
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