Listed bank directors’ pay falls as firms focus on cost cutting

What you need to know:

Analysts say the fall could have been due to reduction in allowances and lower fees compared to the previous year.
It may also have been driven by the fact that costs in other areas – especially provisioning for nonperforming loans – rose significantly.

Pay for directors in most listed commercial banks fell last year just as the institutions embarked on cost-cutting measures that include not replacing staff who leave.

According to data compiled by Genghis Capital, an investment bank, six banks out of the seven that were analysed and which hold most of the industry’s assets and deposits, reduced pay for directors.

Analysts said the fall could have been due to reduction in allowances and lower fees compared to the previous year.

The cut in the directors’ fees may also have been driven by the fact that costs in other areas – especially provisioning for nonperforming loans – rose significantly.

“Looking at the figures, we have seen that Barclays, StanChart, Housing Finance, Co-op and NBK have really cut the directors’ emoluments. This could be in the form of fees or other benefits. It is a deliberate effort to cut costs,” said Mercyline Gatebi, an analyst at Genghis Capital.

On the labour side in 2015, Equity Bank saw the number of employees fall by 660 while the number at Co-op Bank reduced by just over 400 through “natural attrition”.

Equity Bank chief executive James Mwangi said last month that he expected the number to fall further this year as departing employees are not replaced following the adoption of technology and agency banking.

READ: Equity Bank reports drop in staff costs as 660 workers exit

Banks also saw higher funding costs because the rates for fixed deposits rose significantly while the interbank market rates also skyrocketed amidst the depreciation of the Kenya shilling in the last quarter of last year.

Genghis Capital data also shows that cost-to-income (CTI) ratio declined or remained flat for six of the 11 companies listed on the Banking Sector of the Nairobi Securities Exchange (NSE).

“The decline in the cost-to-income ratio was also seen in banks which were not exposed to negative macroeconomic issues in 2015,” said Ms Gatebi.

This was in reference to escalation of interest rates that forced deposits up and also saw some borrowers unable to service their loans.

She noted that over several years KCB has been reducing its CTI, thereby enabling it to continue growing its profitability from year to year. In 2012, KCB Group CTI stood at 64 per cent, but this was cut to 51 per cent in 2013 and then to 50 per cent for the past two years.

“Cost containment is one area we can say we have managed to deal with ahead of schedule. It was a herculean task because two years ago it stood at 64 per cent,” said KCB chief executive Joshua Oigara two years ago.

But KCB had certainly found it difficult to drive that ratio below 50 per cent since 2014 especially as it seeks new areas of growth and improves technology.

Another analysis done by Standard Investment Bank indicates that in 2015 the CTI fell most for Coop Bank, explaining its 46 per cent jump in net profit for the year.

“Financial year 2015 was the bank’s first full year under the transformation programme focusing on increasing income and improving cost management. In the 2015 financial year, management focused on digitising and improving service processes,” said SIB.

Genghis Capital showed that the CTI, among the listed banks, rose most for NBK, clearly brought about by the huge provisions for bad and doubtful loans that only appeared in the profit and loss account in the last quarter of the financial year.