Agency banking lifts deposits near Sh2 trillion mark

Financial institutions’ deposits have approached the Sh2 trillion psychological barrier partly driven by fast uptake of the agency banking model. The deposits are subsequently offering a large pool of funds for investors seeking credit.

New data from the Central Bank of Kenya shows bank deposits at Sh1.9 trillion as at the end of August while Sacco Societies Regulatory Authority (Sasra) reported the industry savings at Sh173 billion during the same period.

Deposit taking micro-finance institutions (DTMs) had accumulated Sh19.7 billion as at end of June.

“Agency model has taken root and is largely mobilising deposits,” said Kenya Bankers Association chief executive Habil Olaka. “The banks are also leveraging on technology with products such as M-Shwari making it easier to save.”

Executives of banks which have taken up the agency model have praised its ability to mop up cash and transfer the same into the formal system with many people using it for deposit transactions.

The model allows banks to recruit agents to offer specified services on their behalf in areas where they do not have physical presence. As at the end of June there were 19,649 authorised bank agents who had made transactions valued at more than Sh310 billion.

In the month of June, Equity Bank customers deposited Sh10.9 billion with agents and withdrew just Sh4.9 billion.

Money held on mobile phone platforms also has to be backed through cash deposits in banks making the technology a strong driver of the savings culture. Banks have also installed ATMs with slots for cash deposits.

The savings are 58 per cent of the country’s GDP, higher than Uganda’s and Tanzania’s which are estimated at 30.3 per cent and 31.5 per cent respectively.

Japan is considered to have the best savings culture with each household average saving estimated to be equivalent to double its annual wage.
America’s deposits are estimated at 48 per cent of the GDP but its household debt has spiralled out of control.

Kenya is the most financially inclusive economy among its East African neighbours with two thirds of its bankable population having access to formal financial services.

The higher deposit ratio underlines the country’s ability to mop up idle cash but lenders have not entirely been able to convert them to productive assets.

Total loans by banks and saccos to businesses and households were Sh1.68 trillion as at end of August — Sh180 billion by saccos.

Of this, banks have loaned out Sh1.5 trillion to the productive private sector with Sh400 billion advanced to the government through Treasury bills and bonds.

(READ: Sacco lending hits Sh180bn in 8 months on public confidence)

High cost of loans and stringent qualification standards set by the lenders have been blamed for the slow uptake of loans. The high-interest rate regime is however a double-edged sword as it also leads to banks paying higher to attract deposits.

The average rate offered by banks for long-term deposits in August was 6.36 per cent compared to four per cent offered two years ago before the high-interest rate regime kicked in.

“Savings is a function of disposable incomes and also deposit rates, which incentivise people to save,” said Vimal Parmar, head of research at Burbidge Capital.

Financial institutions have been advertising attractive deposits rates with some running promotions offering big prizes like cars and land.

Banks will, however, need to increase their capital base so as to match their uptake of deposits with regulatory requirements dictating that every Sh8 received from the public must be backed by a shilling of the owner’s capital.