- They serve a vital stabilising function by acting as intermediaries between savers and borrowers.
- Banks can also help their customers navigate uncertain times by providing financial education.
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Since 2020, the world has witnessed a convergence of once-in-a-generation risks, including the ripple effects of the Covid-19 pandemic, geopolitical conflicts, high inflation, and the growing occurrence of extreme weather events.
This complex web of challenges is often referred to by experts as a ‘poly-crisis’.
Despite the current economic downturn, we must not lose sight of banks' role as beacons of stability in assisting Kenyans to navigate the current economic environment.
To begin with, banks serve a vital stabilising function by acting as intermediaries between savers and borrowers.
They accept and consolidate deposits from savers, subsequently channeling these funds to those in need.
This process effectively guarantees the continued smooth operation of economies.
This intermediary role has taken on a virtual twist as banks continue to invest in digital capabilities and alternative delivery channels to make account holders' lives easier.
Introducing new features that boost digital engagement can lead to significant shifts in the use and adoption of low-cost digital channels that save customers time and money.
With the rapid digitisation of financial services, providers have been driven to introduce innovative products tailored to meet customers' evolving needs.
These offerings include flexible savings plans, insurance products, and investment options, all designed to offer stability in the face of economic fluctuations.
Promoting savings is one of the strategic imperatives that banks can focus on during uncertain times.
Offering high-yielding savings and investment products can assist customers in ensuring that their hard-earned savings grow despite inflation.
Absa Bank, for example, recently increased the annual interest rate on deposits in its Digital Savings Account from nine percent to 10 percent to encourage savings and maximise depositor returns.
Banks can also help their customers navigate uncertain times by providing financial education.
This includes advice on budgeting, saving, responsible borrowing, and prudent investing.
Individually, financial literacy enables people to maximize limited resources, choose the financial services and products that best meet their needs, and shift from reactive to proactive decision-making.
The Standard and Poor's Ratings Services Global Financial Literacy Survey, which covered 140 countries, revealed a startling reality: only one out of every three adults worldwide possess essential financial literacy, which includes concepts such as risk diversification, inflation, numeracy, and interest compounding.
According to the same survey, only 38 percent of Kenya's adults are financially literate.
These statistics highlight a tremendous opportunity for Kenyan banks.
By providing comprehensive financial education, they can provide their customers and the public with the essential knowledge and skills required to secure and strengthen their financial well-being, fostering a more financially resilient society.
Banks can support informed borrowing and repayment decisions by offering customers comprehensive pre-lending educational resources.
This becomes particularly vital during economic downturns when heightened risks are involved.
Practicing responsible lending not only safeguards customers from over-leveraging but also mitigates the potential increase in non-performing loans.
The other way for banks to support their customers’ deal with economic uncertainty is by providing flexible payment options.
This can include providing loan modifications to customers facing challenges in servicing their facilities as required, as demonstrated during Kenya's Covid-19 pandemic.
Responsible lending practices are also essential for ensuring that banks offer customers equitable and inclusive lending services.
This can be accomplished by incorporating sustainability considerations into all lending practices and investing in the success of the communities in which banks operate.
Additionally, given the interconnected nature of businesses and the communities banks operate, it has become increasingly important to consider the impact of environmental and social issues.
At the height of the Covid-19 pandemic, the Organisation for Economic Cooperation and Development (OECD) conducted a study that shows that companies with strong Environmental, Social, and Governance (ESG) performance were more resilient in withstanding shocks associated with the Covid-19 crisis.
In their commitment to supporting Micro Small and Medium Enterprises (MSMEs), banks can offer tailored financial solutions, mentorship programs, and guidance to help SMEs navigate the current economic landscape.
As an example, Absa has implemented a comprehensive four-pronged strategy to facilitate SMEs' access to markets, knowledge, mentorship, networking opportunities, and sustainable finance.
As the saying goes, no man is an island. The current economic challenges present an opportunity for banks to enhance collaboration and networking through ecosystem intermediation for instance partnering with firms capable of adding value to their services, such as technology and business advisory companies.
This will allow banks to create resilient ecosystems that lay the groundwork for the prosperity of their clients and society at large.