Commercial banks have shed about seven per cent of their workforce in the one year since the law capping interest rates was introduced, a survey released by the industry lobby Kenya Bankers Association (KBA) has shown.
The survey released on Thursday showed that banks had let go 1,933 employees, both in management and non-management positions, between August 2016 and June 2017.
Kenya in September 2016 capped commercial lending rates at four percentage points above the 10 per cent Central Bank Rate and imposed a minimum deposit rate of 70 per cent of the benchmark rate.
Analysts said the rate caps marked the end of more than a decade-long boom in the financial sector that saw banks post super-normal profits on the back of wide margins in loans and deposits interest rates charged to customers.
“The law has also promoted adjustments in the banking industry in the form of staff and network rationalisation,” KBA said in a statement.
More than nine banks, including Standard Chartered , Equity Bank , KCB Group , National Bank , Ecobank, Barclays and Islamic finance lender First Community, announced lay-offs in the 10 months to June.
In June, Barclays Bank of Kenya announced that it was laying off 130 employees through a voluntary exit scheme.
It joined other lenders that have in the recent months shed-off employees as they try to cut down their operation costs in light of dwindling interest income and ballooning non-performing loan books.
Earlier this year, Equity Bank, Kenya’s biggest bank by customer base, let go of more than 400 workers, Standard Chartered followed closely with 300 workers, while First Community and Sidian Bank shed off 106 and 108 workers.
KCB Group, the largest by assets in the country, announced in February that it would lay off 28 workers at its Rwandan branches as it restructured its operation.
Depend on Agents
But all is not gloom as commercial banks, looking to cut down their cost of operation, are leveraging more on technology and agents — where shop owners also provide limited banking services for a commission — to serve their customers.
KBA’s survey showed that banks were now relying more on agents with the number of agencies rising from 41,686 as at August 2016 to 53,667 outlets as at June 2017.
On the other hand the number of bank branches has been on a decline to stand at 1,102 at the end of June since peaking at 1,117 in April.
Barclays Bank announced it will shut seven branches this year. Bank of Africa and Eco Bank, also indicated they would close 12 and nine branches respectively.
Bank are also pursuing digital strategies including a play between mobile money and online banking to reduce the need for customers frequenting their brick-and-mortar branches for services and help them cut costs.
“Mobile (money) lending decisions are made automatically meaning banks don’t need both the approval and collection guys. This has rendered many credit personnel redundant,” Johnson Nderi, manager corporate finance and advisory at ABC Capital, said.
Mr Nderi said the interest rate caps introduced slightly over a year ago had made some of the banks products redundant, forcing them to let staff working under such products go.
In September 2016, the government capped commercial lending rates at four percentage points above the 10 per cent central bank rate and also imposed a minimum deposit rate of 70 per cent of the benchmark rate.
This, according to a global credit rating firm Fitch, has hurt bank’s earnings, particularly for small lenders who relied on “high-risk/higher returns loans for an income.
“The reduction in lending has contributed to a rise in credit loses, as some customers are no longer able to get refinancing,” Fitch said.
Data compiled by the Business Daily showed that earnings for 38 out 44 commercial banks in the country fell 15.8 per cent to Sh140 billion in the first half 2017, setting the lenders up for lower profitability this year.
A number of commercial banks have attributed the dwindling profitability to a tough economic environment occasioned by the rate cap regime.
“It is increasingly becoming evident that the expectations of the Act are not being met,” Habil Olaka, KBA’s chief executive said, adding that the rate caps had stifled credit in the economy and should be repealed.
Source: Asoko Insight