Central Bank of Kenya. Leading commercial banks are increasingly making
good money from fees and commissions charged on various products in the
wake of the interest cap law choking returns. FILE PHOTO | NMG
Summary
- A review of the top lenders’ financial statements for the year ended December 31, 2017 shows that the eight Kenyan banks earned Sh68 billion in the period from Sh63.1 billion during a similar period the previous year.
- Experts have in the recent past pointed out that banks have been turning to commissions and fees as profit boosters, with a significant increase in these revenue lines likely to mitigate the impact of narrowed lending margins.
- Despite a push by the banking regulator to infuse transparency in financial sector pricing, a study released last year by the Financial Sector Deepening (FSD) Kenya raised the red flag over hidden costs charged by banks to unsuspecting consumers.
- Commercial banks were on October 2016 ordered by the Central Bank of Kenya (CBK) to immediately stop charging their customers any new levies following the coming into force of a new law putting a ceiling to interest rates charges.
The top eight commercial banks income from commissions and fees
surged eight per cent or the equivalent of Sh4.86 billion last year.
This
was reported even as lenders sought to boost profits through fees and
charges on consumer products and transactions to beat the rate cap law,
which has seen their interest income margins thin.
A
review of the top lenders’ financial statements for the year ended
December 31, 2017 shows that the eight Kenyan banks earned Sh68 billion
in the period from Sh63.1 billion during a similar period the previous
year.
Experts have in the recent past pointed out that
banks have been turning to commissions and fees as profit boosters,
with a significant increase in these revenue lines likely to mitigate
the impact of narrowed lending margins.
Despite a push by the banking regulator to infuse transparency
in financial sector pricing, a study released last year by the Financial
Sector Deepening (FSD) Kenya raised the red flag over hidden costs
charged by banks to unsuspecting consumers.
Commercial
banks were on October 2016 ordered by the Central Bank of Kenya (CBK)
to immediately stop charging their customers any new levies following
the coming into force of a new law putting a ceiling to interest rates
charges.
In 2016, Kenya capped commercial lending rates
at four percentage points above the Central Bank Rate, and set a
minimum deposit rate, squeezing profit margins for banks.
These
have seen banks come under pressure to rely more heavily on fees,
commissions and other charges to achieve the soaring earnings growth and
dividends they previously enjoyed and that shareholders expect.
Some
lenders have introduced new chargeable services or raised fees on
existing products in the wake of interest rate caps. At nearly Sh5
billion, the cash made by banks in service charges is enough to set up
two cancer centres, under the Health ministry’s roadmap to the killer’s
control in Kenya.
Banks charge fees from
account-related charges to customers. Charges that generate fee income
include non-sufficient funds, overdraft charges, late fees,
over-the-limit fees, wire transfer charges, monthly service charges,
account maintenance fees (ledger fees), obtaining account statements, as
well as ATM withdrawals.
Lenders
previously focused on the loans business, which generated the bulk of
their profits, with fees on transactions lowered or maintained for years
in a bid to attract and retain customers.
A review of
the top lenders financial statements for their Kenya business shows
income from fees and commissions for CFC Stanbic surged 38.6 per cent or
Sh984 million to Sh3.5 billion in the review period from Sh2.5 billion a
year earlier.
KCB
, which is
Kenya’s largest bank by assets went up 16.4 per cent or equivalent of
Sh2 billion to Sh14.6 billion in the review period from Sh12.6 billion a
year earlier.
Equity Bank
, which
is the biggest lender by customers in Kenya, saw its income from fees
and commissions go up 11 per cent or Sh1.94 billion to Sh19.2 billion in
the period from Sh1.3 billion.
Diamond Trust Bank (DTB)
saw its income from fees and commission rise by 5.35 per cent or Sh165
million to Sh3.2 billion from Sh3 billion a year earlier.
Commercial
Bank of Africa (CBA) saw its earnings from fees and commissions grow
two per cent or Sh154 million to Sh7.66 billion from Sh7.51 billion a
year earlier.
Standard Chartered Bank Kenya
(Stanchart) recorded a 0.43 per cent or Sh19 million rise in income
from fees and commissions to Sh4.53 billion from Sh4.51 billion a year
earlier.
Co-operative Bank of Kenya (Co-op Bank) saw
its income from fees and commission rise by a marginal 0.29 per cent or
Sh27 million to Sh9.8 billion from Sh9.79 billion.
Barclays Bank of Kenya
(BBK), however, recorded an 8 per cent drop in income from its fees and
commissions to Sh5.2 billion from a year Sh5.77 billion a year earlier.
The FSD report found that banks in the study period were filing disclosures that fail to fully respect the tariff situation.
“Although
banks are required by the Central Bank of Kenya (CBK) to publish
“tariff guides” with all their fees and charges, the FSD study found
that many were either outdated, incomplete or lacking account specific
information,” said the FSD in the study whose findings put the regulator
on the spot for failing to protect consumers.
“Despite
visiting over 30 bank branches and consulting tariff guides, customer
care representatives, bank websites, enquiring from colleagues and
friends, over several weeks in 2015 and 2016, we still could not get
consistent pricing information,” said FSD in the study.
The
report outlined the findings from a two-year study by FSD Kenya, a
UK-funded NGO, to understand the costs for banking services in Kenya.
It
said two rounds of mystery shopping surveys were completed in October
and November of 2015 and 2016 to build a database and measure the costs
for basic bundles of transactions such as opening, running and closing
bank accounts.
While conducting the study, however, the
report said it became clear that bank pricing data is difficult to
obtain and that market information is still opaque. CBK director in
charge of Bank Supervision Gerald Nyaoma said in a circular to chief
executives of commercial banks and mortgage finance companies last year
that the regulator had at the time received numerous applications from
banking institutions seeking approval to increase charges on products.
Mr
Nyaoma said at the time that the CBK has received mounting complaints
over introduction of new arbitrary charges since the Banking (Amendment)
Act 2016 came into force on September 14 2016, whose effect is to
nullify any gains to customers of the law capping interest rates.
“The
CBK has also received a number of complaints from bank customers
stating that their banks have imposed arbitrary charges or unilaterally
converted their savings accounts into transactional accounts, and
thereby losing the benefits that were accruing from their savings
accounts,” Mr Nyaoma said then in the circular.
The
Consumers Federation of Kenya (Cofek), last year faulted the CBK for
failing to immediately crack the whip on rogue lenders, which were
adding illegal charges on unsuspecting customers.
“The
Central Bank of Kenya has no business reminding people to follow the
law. It has a business to crack the whip. What we expected from Central
Bank was that Bank “X” or “Y” is not doing this and these are the
sanctions or that they show cause why this should not be done,” said
Cofek secretary- general Stephen Mutoro in an interview earlier adding
that the CBK’s message is akin to reminding the banks not to be caught
pants down.
To collect data for the FSD study,
researchers visited multiple bank branches posing as clients, as well as
customer service call-lines and web searches to collate data.
The researchers said some information was difficult to obtain and validate, even from different branches of the same bank.
“While some charges are straightforward, such as ATM withdrawals costs, others are surprisingly difficult to obtain.”
It
noted many branches displayed outdated tariff guides and complex
pricing structures that even the frontline bank staff are not familiar
with.
“The mystery shopper exercise mirrored a typical
customer’s journey, with most customers obtaining information on banking
from branches. The inability to obtain consistent information over
several weeks of data collection reflects a transparency issue in the
market.”
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