NIC Bank eyes 50 per cent deposits from retail customers

• NIC Bank is targeting a 50/50 deposits mix between retail and corporate clients by 2015 from the current 70/30 mix in favour of corporate customers.
• NIC signed an agency agreement with Post Bank in March. Post Bank has 97 branches in its network spread across the country.
• Banks are increasingly using agents which have allowed deposits collection, account opening and other services to be carried out on a third party’s infrastructure which has slowed down the rate at which banks are opening branches.

NIC Bank plans to take up more deposits from retail clients in the next three years in a bid to reduce interest costs paid to depositors.

The lender is targeting a 50/50 deposits mix between retail and corporate clients by 2015 from the current 70/30 mix in favour of corporate customers.

“We plan to be more aggressive in retail banking and agency, mobile and e-banking are key to this,” said NIC director of finance and strategy Joe Mutugu.

NIC signed an agency agreement with Post Bank in March. Post Bank has 97 branches in its network spread across the country.

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“We estimate that cost of funds could come down to an average of about 3.3 per cent by 2015 (4.4 per cent 2011 versus 1.7 per cent for both KCB and Equity Bank),” says African Alliance in a research report on the bank.

Eric Musau, a research analyst at Standard Investment Bank, said the cost of funds for small banks generally tend to be higher than bigger ones.

The net interest margin (NIM) ratio is calculated from the difference between interest earned and the cost of funds. “Generally smaller banks tend to have a smaller NIM because of higher cost of funds,” said Mr Musau.

A banking sector report by Standard Investment Bank shows that Equity Bank’s NIM was 11.6, Barclays 11.3, KCB 9.7, Co-operative Bank 8.9, DTB 8, StanChart 7.6 and NIC 7.

Johnson Nderi, a research analyst at Standard Investment Bank, said that deposits from retail customers, which large banks mainly serve through salary and other accounts, are cheaper to maintain than the corporate alternatives.

“Most of the retail accounts are client accounts which attract no interest,” says Mr Nderi.

The downside or retail deposits, he said, is that deposits from retail customers are not as reliable as those from corporate clients and this uncertainty at times may force banks to seek bonds and other sources of funds to make up for the mismatch.

Housing Finance, KCB and Equity Bank have gone to seek long-term funding from lenders such as the International Finance Corporation which also tend to be cheaper.

Mr Nderi added that for NIC Bank, riding on Post Bank is expected to be cheaper since the bank would be spared training and recruitment costs since Post Bank already has employees already handling cash transactions.

Banks are increasingly using agents which have allowed deposits collection, account opening and other services to be carried out on a third party’s infrastructure which has slowed down the rate at which banks are opening branches.