Banks race for deposits
This season has nothing to do festivities like Christmas or Easter but banks are in a giving mood, or so it may seem going by the number of promotions with prizes worth millions on the line.
Ranging from Co-operative Bank's 'Ongeza Akiba Imarisha Maisha', Kenya Commercial Bank's ' Jaza ujazike 'to 'Angukia Hao na Ecobank' then add the family banks M-KANISA account for tithe and offerings all designed to enticing you to open an account with them, the picture becomes clearer; The banks are in a race for your money.
Deposit mobilization is the latest battle front for banks seeking to shore up their lending resources, probably to avoid expensive options of raising the cash from each other at rates oscillating around 16%.
According to the May 18, 2012 CBK Weekly Bulletin, the average interbank rate decreased to 15.96 percent during that week, from 16.35 percent in the previous week.
“The high cost on the interbank may be a motivator for the banks to explore alternative ways of resource mobilization, especially if the deposits can be mobilized at a lower cost with the ultimate beneficiary being the borrowing customer. This is an indicator that banks require more cash to lend, and are therefore looking for alternative sources of deposits than they have been using in the past. It may also be an indicator that there is a lot of cash in the customers hands and mobilizing deposits would then infuse the cash into the banking system,” said Habil Olaka, the Kenya Bankers association Chief executive.
Some of the banks are targeting the deposits as risk-free business to drive up profits through fees and commissions derived from transactions, as opposed to lending which come with default risks.
While a number of banks are now wooing account holders to switch to current accounts to avoid paying interest on deposits, others are dangling prizes in promotions, promising lucky depositors big wins so long as they put money into various types of accounts specified in the campaign.
“There definitely is a competition for the cash in circulation between the banks that are offering the products,” Olaka said
Some of the banks posted lower levels of customer deposits in the first quarter of 2012 compared to the same period the previous year, an indicator that the renewed campaigns are driven by the thirst to restore growth and at the same time increase levels of deposits.
“Customers deposit cash in savings is one of the cheapest ways of mobilizing deposits for onward lending. Promoting the savings culture for facilitating investment through the intermediation is the key role of the banking system. This can be achieved by such options as providing incentives in addition to just pricing,” Olaka said.
According to Equity bank which prides itself with not engaging in promotions involving giveaways, seven out of every 10 new bank accounts were opened in Equity, with net results of massive numbers of customers giving them more profits in fees and commissions than returns from interest on loans.
“Equity is a mass market product and and since the bulk of the population is still unbanked it can grow exponentially, because here they don't win a car but they win their respect and dignity,” said Equity Bank CEO James Mwangi at the banks investor briefing recently. “We no longer need fixed assets to get customers because other distribution channels have filled the gap, among them agency banking” he added.
Equity bank customer numbers grew by 21 percent last year, 83 percent of the growth driven by delivery channels other than person to person service by employees. Point Of Sale recorded growth of 130 percent and agency banking posted 144 percent in the number of customers they registered.
Kenya Commercial Bank Group chief executive Martin Oduor-Otieno told shareholders at its 41st Annual General Meeting that they will focus on innovative products, including mobile platforms, and double its number of agency bankers from just under 3000 to 6000 within the year to net more depositors as part of an integrated market campaign to grow their book.
Regionally KCB hopes its enhanced core banking platform for bounder-less banking gives them a better footing against competitors.
Commercial banks maintained an average of Sh2.4 billion in their settlement accounts below the monthly average cash reserve requirement of 5.25 percent at the Central Bank in the week to May 16, 2012 compared with Sh0.5 billion below cash reserve requirement in the previous week.