BANKING

Customers to follow banks that cared during Covid-19 - report

They are monitoring banks decisions on interest and non-funded income, staff and other expenses, impairment and liquidity.

In Summary
  • The PwC report terms Covid-19 as an opportunity for lenders to build trust 
  •  Local banks were among top corporate entities that contributed immensely to the Covid-19 Emergency Response Fund set up by President Uhuru Kenyatta
Coop Bank Group managing director Gideon Muriuki at a past event.
Image: COURTESY

The Covid-19 pandemic provides banks with a unique opportunity to build trust and exhibit strength, says latest report by the PricewaterhouseCoopers (PwC).

Dubbed ‘Impact and opportunities of Covid-19 on Kenya’s banking industry, customers are monitoring banks decisions on interest and non-funded income, staff and other expenses, impairment and liquidity.

"A bank’s response to these and other issues could become critical to future customer and employee relationships. It could also very well damage the institution’s reputation if these issues are not handled well,’’ the report reads in part.

It adds that if a bank responds effectively and sensitively, it can demonstrate its true value to its customers and society at large.

The report notes that Covid-19 pandemic is a threat as well as an opportunity to demonstrate the exceptional ingenuity and problem-solving capabilities within Kenya’s banking industry.

The report by PwC is coming just weeks after local banks announced their full year results, which saw significant drop in earnings due to high loan provisions and other Covid-19 dynamics.

A review of the banks audited financial statements shows that top eight Kenyan banks by market share more than tripled their loan loss provisions to Sh104.64 billion from Sh28.68 billion in 2019.

In March last year, the Central Bank of Kenya (CBK) announced a raft measures to cushion borrowers from economic effects of Covid-19.

They included loan restructuring, scraping of mobile banking charges, freeze on delisting among others. Most of these measures have since been reviewed after the government  eased strict Covid-19 prevention measures in July last year. 

''We continue to actively engage our customers to support them through this period, by re-aligning the servicing of facilities, funding and transactional needs as the situation unfolds,'' Co-op Bank Group MD Gideon Muriuki said.

In a statement after local lenders agreed to give borrowers three more months to regularise their loan repayments late March this year, the CBK revealed that loans amounting to Sh1.7 trillion were restructured during the period from March 3, 2020 to February 2021, accounting for 57 per cent of the banking sector’s gross loans.

Following the resumption of repayments and some pay-offs, the outstanding restructured loans at the end of February 2021 amounted to Sh569.3 billion, accounting for 19 per cent of the total industry’s gross loans.

According to PwC, interest on loans will be the key determinant for new customer subscription or retention as borrowers look for cheaper credit to jump start activities stalled by Covid-19. 

An analysis of interest rates charged by 36 local commercial banks by the Business Daily shows  that they range from 11 per cent to 13.63 per cent, with the variations in the total cost of credit driven largely by differences in non-interest charges.

According to the tabulation, the cost of borrowing Sh1 million secured loan repayable in 12 months averaged at Sh122,400 with GT Bank, Cooperative Bank and Bank of Africa ranked cheapest at Sh101.807, Sh101,849 and Sh105,185 respectively. 

Absa Bank Kenya  led a group of large lenders offering the most expensive loans in the market, with interest of Sh143,007 on secured loan worth Sh1 million. They are followed by Sidian and Eco Bank at Sh140,807 and Sh121,407 in that order.

Apart from interest rates, borrowers will be looking at banks measures to ensure uninterrupted services and general welfare care for employees and the society. 

''While most lenders have prompt digital channels to support virtual banking, those with innovative mobile money banking components stands a better chance, the report shows.

 Local banks were among top corporate entities that contributed immensely to the Covid-19 Emergency Response Fund set up by President Uhuru Kenyatta and general response to the pandemic.  

According to the Fund's website, Equity Bank Group contributed a total of Sh1.1 billion including its chief executive's James Mwangi's personal contribution of Sh300 million and Sh500 million from MasterCard Foundation.

Cooperative Bank on the other hand donated Sh1 billion to the Fund in April last year while KCB Group contributed Sh150 million. 

Others like Stanbic Bank through its foundation have been partnering with other institutions to provide essential materials towards the fight against the pandemic.

In a recent interview with the Star, Pauline Mbayah, an executive director at Stanbic Kenya Foundation detailed the lender's effort to ensure oxygen supply in hospitals  and provision of kitties to medical practitioners. 

Although a small section of borrowers look at bank's liquidity ratios and overall financial health, investors are watching keenly.

Following the release of the FY’2020 results, six of the 10 Kenyan listed banks issued dividends to their shareholders, an indication that the capital adequacy and risk management policies employed under ICAAP for most of the listed banks was satisfactory to the CBK. 

The latest Banking sector report by Cytonn shows Cooperative Bank paid out highest dividends of Sh5.9 billion demonstrating its financial strength at the time several others opted to reinvest shareholders' earnings.

This has boosted the firm's share performance at the Nairobi Securities Exchange (NSE) with a high equity return of 11.7 per cent.

Even so, investors at Stanbic Bank Kenya had higher earnings per share of Sh3.80. Others are Standard Chartered Bank, KCB Group, NCBA and I&M Bank.