Report tips banks to beat Covid-19 economic challenges

Customers in a banking hall.

File | Nation Media Group

By  Beian Ambani

What you need to know:

• Growth in large banks was helped by mergers and acquisitions as seen with that of NIC with CBA to form NCBA.
• This moved the latter to third position in terms of assets behind KCB and Equity Bank.

Banks are well positioned to withstand the tough economic challenges occasioned by the Covid-19 scourge, a new report says.
This is on the back of a sector having started the year with adequate capital and liquidity buffers, giving it a better chance of navigating the pandemic.
The 2020 report of the Kenya Bankers Association (KBA) shows that financiers have an impressive asset base to weather shocks arising from the prevailing economic slowdown without causing chaos in the financial system.

The report shows that the banking industry’s assets stood at Sh4.8 trillion by the end of 2019, out of which Sh2.7 trillion was in loans and advances.
Bank’s total assets have been growing at a modest rate of 9.2 per cent, mainly driven by an increase in credit extended to the private sector, although they have not hit the pre-2017 double-digit growth figures.

However, non-performing loans remained high and took up double-digits as a share of loans, standing at 12.6 per cent during the same period.

Improve its efficiency

In 2018, bad loans made up 12.7 per cent, pointing to the fact that their stock remains high even as credit market growth is subdued.
The industry still needs to improve its efficiency, according to the report.
In spite of this, the report adds, “it is evident that the market is in the right trajectory.
“And indeed, it is increasingly evident that financial performance that stems from such efficiency gains comes with the endeavour to enhance operational economies of scale.”
“The implication of the capital sufficiency with adequate buffers that carried over from 2019 into 2020 means that the banking industry, which demonstrably dominates the Kenyan financial system, has remained a key line of [defence] in the economy when it comes to responding to the current economic slowdown,” said KBA chief executive Habil Olaka (left).

Dr Olaka said the industry's heavy investment in digital infrastructure in recent years is one of the key factors that enabled banks to quickly switch when faced by the Covid-19 disruption to a digital-first banking model for both retail and commercial clients.

Business continuity

“Banks have remained open and continue to serve. As such, business continuity has been assured,” he said.
He added: “The banking industry has walked step by step with clients, restructuring in excess of Sh840 billion (up from Sh360 billion in June).
This is a remarkable demonstration of the industry’s ability to anchor the economy over the short to medium term.”
In 2019, total loans and advances accounted for 55 per cent of the banking industry’s total assets, while government securities and placements in other banks accounted for 35 per cent.
Large banks witnessed the highest growth in assets in 2019 followed by small ones, while medium-sized lenders saw muted growth.
Growth in large banks was helped by mergers and acquisitions as seen with that of NIC with CBA to form NCBA.

This moved the latter to third position in terms of assets behind KCB and Equity Bank.
National Bank of Kenya was also acquired by KCB, solidifying its asset-base, while big banks are continuing the trend this year after Cooperative Bank acquired Jamii Bora Bank.