Large lenders lose ground to smaller industry players

The profitability of the six large banks shrunk last year as that of smaller banks grew at a faster pace driven by cheaper sources of funds.

Results from the industry show that the profit made by the large banks last year shrunk to 62.8 per cent from 65.5 per cent in 2012 while their control of deposits dropped to 49 per cent from 52 per cent.

“The large players have been looking to consolidate their businesses while the smaller players are looking for growth,” said Makarios Agumbi, assistant general manager of finance at Chase Bank.

The smaller lenders have been more aggressive in capital raising activities buoyed by increased public confidence, better pricing and staff mobility in the sector.

Central Bank classifies KCB, Equity, Barclays, Co-operative, StanChart and CFC Stanbic as large lenders in a market with 43 banks.

A survey by CBK in October last year showed that the large banks were charging borrowers up to 2.45 percentage points more than the smaller competitors while paying depositors lower interest rates.

The interest rate spike in 2011 prompted borrowers and depositors to be more sensitive to pricing, motivating the shift.

READ: Large banks squeeze more profits out of customers than small lenders

Entry of international corporations in the ownership of the small banks has also given large clients and institutions confidence to put their savings in smaller brands.

Some of the banks that have attracted new investors include Chase Bank, I & M, and Fina Bank, now renamed GT Bank. The Higher Education Loans Board recently included Chase Bank in its list of bankers.

Low systemic risks have also encouraged the shift, with no bank having gone under in more than a decade. Higher capital requirements by the Central Bank, which the smaller banks met without the expected consolidation, have also helped.

Analysts point at the large banks’ decision to let go of expensive fixed deposits as the source of their woes as it curtailed their lending.

“Large banks were focusing on paying out expensive deposits, which they had taken in 2012 and that had to impact their loan book as they had less to lend from,” said Standard Investment Bank head of research Francis Mwangi.

Insiders in the industry also said poaching of staff from the big players was influential in pulling away some large clients in the relationship-based industry.

Smaller lenders have also utilised the new capital in expanding their branch network beyond Nairobi and enhancing their presence in online banking.