How Absa is coping with loss of mobile transfer fees

 

For three years now, banks have not made money on transfers between accounts and mobile wallets.

In an interview with the Business Daily, Absa Bank Kenya  chief executive Jeremy Awori discussed the risks associated with the Central Bank of Kenya (CBK) waiver and why the banks would even be willing to cut the fees as a tradeoff to have the charges reinstated.

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SEVERAL BANKS ARE NOW CALLING FOR A RETURN TO CHARGES ON BANKS TO MOBILE MONEY TRANSACTIONS. DO YOU ALSO SHARE THIS VIEW?

We definitely feel they should now be re-introduced because they were introduced for a specific purpose that was supposed to be temporary to ease the cost of banking for people and to encourage the use of digital currency, which it did.

We saw the volume of transactions shoot up whether it was M-Pesa, whether it was bank-to-bank and I think that was a great initiative.

WHAT IF THE REGULATOR CHOOSES NOT TO RETURN THEM?

I think now we are at a time where we all would prefer they come back. And I think we need to be dynamic over time because if they do not come back, investments in new functionalities in those channels will not happen.

When you are investing in a mobile platform it is based on a return. It is not a free service. The thing that is causing a little worry is that if it stays for long we are going to see innovation and services coming out of the platform reduce.

When you put a business case and say you want to invest Sh500 million and they say how much money are you going to get and you say actually I can’t charge anything, you will simply go somewhere else where you can get a better return.

WILL YOU CONSIDER LOWERING THE CHARGES IF THEY ARE RETURNED?

I think number one we would like to see them come back and then secondly. I think over time we will have to keep reviewing our charges because obviously if the volumes are going up then there will be opportunities for the charges to come down.

As we use automated channels we also find ways of passing on those benefits just as we have done for interest rates. As interest came down we passed on those benefits to customers while still retaining our margins.

I think as an industry we have been losing billions and billions of shillings, but I guess we have to wait for the full-scale integrated reports. I think you have seen what the impact it was for Safaricom, and their numbers.

HOW MUCH MONEY HAVE YOU FORGONE SO FAR?

I think for all banks, especially tier one banks who have large sets of customers, it is running into billions of shillings.

BUT WE HAVE NOT SEEN A BIG IMPACT ON NON-FUNDED INCOME. DOES IT MEAN BANKS HAVE FOUND A WAY AROUND IT TO SUPPLEMENT THAT INCOME?

I think we are always looking for new ways of making revenues. So if you look at ourselves we have identified specific businesses that we wanted like asset management which we now have formed a full subsidiary.

We have a few income products like unit trusts and investment solutions, whether it is institutional or retail.

We have got a brokerage business which have some of our investment banking deals like the EABL transactions. We are investing a lot more in payments because there are high volumes of payments.

Getting some small fees, whether they are for diaspora or payments between Kenyans who are here, will see those income lines growing.

And hopefully, as the economy grows and people are getting more jobs we will be lending more and getting the small arrangement fees that are in place in terms of risk fees. So we are all looking for new ways of growing non-funded income.

ON THAT POINT, WHEN DO YOU THINK CBK WILL APPROVE YOUR RISK-BASED MODEL? WE SAW EQUITY GOT THEIR APPROVAL.

Every bank is having its own discussions there is continual dialogue so there are still elements which we sort of need to iron out. But let’s see.

I am confident we can find a meeting of minds. I think the best way is to find a way of giving the risk-based returns for the banks to be worthwhile at the same time giving customers the most affordable rates

The thing that needs to be in front of us is that today those locked out of the credit system are borrowing from the shylocks, people who are charging them 10 times what we charge per month.

WILL THIS UNLOCK CREDIT TO THE PRIVATE SECTOR BECAUSE MOST OF YOU ARE REPORTING ACCOUNTING PROFITS BY LOWERING LOAN LOSS PROVISIONS AND GOVERNMENT LENDING AND VERY LITTLE IS GOING TO THE PRIVATE SECTOR?

We need positive sentiment from the private investors — people coming in and saying I am investing in my business to grow. And when we invest in your business to grow you might buy machinery, hire people, create new jobs and then those people we can hopefully lend to.

Also another factor I think is whether we like it or not, the little bit of competition between private sector and government. If you can’t price for the risk in private sector credit you will just go to government securities and you weigh out, do I want a T-Bill at 10 percent or a mortgage at 11 percent?

With your T-Bill you do not have to chase anybody about defaults, you do not have to go through property registration and all of that.

For us what we do is we want to make sure we have a balanced set of investments. We wouldn’t just go into government securities, because it is a higher return, at the expense of lending to customers. So we challenge ourselves to find customers we can lend to. Because if we do not we will not have businesses. Everyone will be lending to the government and we will not have customers or be here in a few years to come.

BANKS ARE ALSO GOING AFTER THEIR DEFAULTERS AND WE HAVE SEEN BIG NAMES UNDER ADMINISTRATION. ARE YOU ALSO GOING AGGRESSIVE AND WHAT ARE SOME OF THE BIG NAMES IN YOUR NPL BOOKS?

We typically did moratoriums for six months to a year. Some banks have done one year, two years, three years. Under a moratorium, one is technically not in default so you have to wait for the passage of time for you to come back and say ‘OK moratorium is over so we have to start paying up’.

Over 95 percent of our customers are back on track. We believe it is important they get back on track because if they stay too long without paying that money starts getting spent elsewhere in the business.

In our case, we have a very clear focus on the names which we are looking at. I have got to say I am very proud as a bank we have been very good at identifying cases where we are uneasy about the credit performance.

We do not have exposure to KQ  , Nakumatt, Mumias  , I can go down the list. And those are big numbers if they go to provisions they can wipe out 50 percent of your profits.

We are quite proactive with customers. We have those conversations very early. If we start seeing indicators we do not wait until you are in ICU. We do not want you to even get to the hospital. We want to say to you, ‘you do not seem 100 percent, let us talk about it, let us be honest’.

We do not want to sell your plant or your house, or the property you have charged, it is an expensive, legal case.

dguguyu@ke.nationmedia.com