The Central Bank has piled pressure on commercial banks to relook at their costly business models with a view to specialising in their strongest product segments.
CBK deputy governor Sheila M’Mbijiwe says it may not be sustainable in the long-term for lenders to offer all products irrespective of their size.
“Whether you are small or big bank, you are doing the same things. Is that really realistic or should banks have an understanding of what they are best in?” M’Mbijiwe said. “What is it about our banking structure that we are all trying to do everything and maybe not doing many of those things well.”
There is little specialisation in loan products, for example, where nearly all the 42 lenders in operations have products in all broad categories of corporate, business and personal banking.
US-owned Citibank is notably the only lender which specialises in corporate banking. CBK data in June also showed that Giro Commercial Bank had no product in personal banking, while Middle East Bank had no product in business banking.
M’Mbijiwe says efficiency and innovation will be key in driving future growth for banks.
“Global competition is here. If existing banks do not take cognizance of this increasing recognition, we could also go behind,” the CBK deputy chief told bankers last Thursday. “There's need to continue to review customer proposition.”
The capping of loan charges at four percentage points above the base rate set by the CBK with minimum interest on term deposits at 70 per cent of the base rate is likely to hit hard lenders who largely depend on interest for profit margins.
“The challenge is how do we then grow our business …(and) diversify to the point where it's a profitable business but also one that passes value to our customers,” CfC Stanbic Bank chief executive Philip Odera said on August 31. “Certainly, this has been a period where we have had to spend a lot more time as a bank just trying to understand our customers are not better off, understand what is it that they require and there are a number of customers who require services that go above and beyond borrowing, which we need to address ourselves to ensure that what we are providing to our customers is indeed a holistic approach.”
KCB Group chief executive Joshua Oigara has said interest caps are a disruption to banks' growth strategies, but was emphatic lenders will come out stronger.
“The industry will have to be more innovative on how we look at our costs, new products of improving the market (and) growing our share. Affordable credit credit is good for the economy,” Oigara said on September 1.
Section 33B 1(a) of the Banking(Amendment) Act requires banks not to charge more than four percentage points above the rate set and published by the Central Bank, while (b) puts an interest floor of 70 per cent of the same base rate on savings accounts.
Lenders contravening this shall be fined not less than Sh1 million or on default, the chief executive jailed for not less than a year under Section 33B (3).