Kenya banks rated most competitive in EA region

Kenya’s banking sector is the most competitive in the East African region, a survey by the IMF has found.

The International Monetary Fund (IMF), in a report released on Friday, also said Kenya leads the region in the number of individuals who have access to formal banking.

The survey, which ranks the competitiveness of banking sectors of the five countries based on two indices — the Lerner index and the H-statistic — shows there is more competition in the largest East African economy for the financial intermediaries than in the other four.

The first index measures ability to set prices above expenses, a lower value indicating lower pricing power and higher competition while a higher value provided by the second index indicates higher competition.

Kenya’s banking sector is the most competitive with banks making up to 29 per cent above costs while in Tanzania, Rwanda and Uganda they are able to make up to 34, 36 and 39 per cent above costs incurred respectively, the report says.

“The average value of the Lerner Index for the EAC countries is between 29 and 36 per cent, implying that banks price between 29 and 36 per cent above marginal costs. Higher values of the index imply less competition,” said the lending agency.

The second index gave Kenya a score of 0.6 — the highest in EAC — and Tanzania, Uganda and Rwanda 0.56, 0.55 and 0.24 respectively.