Mid-tier lenders grab market share from small banks

The battle for local market that has seen Co-operative Bank edge out Equity Bank from second position has been replayed by middle-tier banks that have grabbed a larger share.

Mid-tier lenders have snatched assets, customer deposits and market share over the past two years from large and small-tier counterparts, data from Central Bank of Kenya shows.

The 16 banks classified in the middle category have seen their asset base grow to Sh1.37 trillion at the end of 2014 representing 42.7 per cent of the industry total of Sh3.19 trillion, with customer deposits at 41.6 per cent of the industry total of Sh2.29 trillion.

In 2012, there were 15 banks classified as mid-tier with assets of Sh875 billion representing 37.6 per cent of the industry total of Sh2.33 trillion, and customer deposits at 38.4 per cent of the industry’s Sh1.7 trillion.

According to sector analysts, the Kenyan banking industry has been evolving from a high growth phase driven by innovation and low financial inclusion into a more mature sector, thus the mid-tier banks that have been aggressively targeting or operating in new growing markets are in a position to see better growth.

“The tier II banks, some of whom have specialised experience in regional markets and with recently acquired capital through rights and bond issues, now have the necessary capacity to boost earnings going forward,” said Genghis Capital analyst Silha Rasugu.

Over the two year period, the share in industry assets held by the six large tier banks has shrunk from 52.9 per cent to 48.8 per cent, while that held by the 22 small tier banks has also dropped from 9.5 per cent to 8.5 per cent.

The same trend is maintained in the share of customer deposits, with the large banks dropping from 51.5 per cent to 49.6 per cent and the small banks from 10 per cent to 8.8 per cent.

Overall, KCB remains the largest bank as measured by the composite of net assets, deposits, total shareholders’ funds, number of loan accounts and number of deposit accounts index at 12.69 followed by Coop with 8.91 — both with superior deposit, net assets and shareholder funds — and Equity at 8.70.

But increasing their share of assets and deposits has allowed the mid-tier banks grow their market share in the industry by 4.89 percentage points to 41.71 per cent, pulling the share held by large banks below 50 per cent to 49.8 per cent, a drop of 3.84 percentage points in two years.

The top four banks in the category — CfC Stanbic, Diamond Trust Bank, NIC and I&M — have seen their collective market share go up by 1.31 percentage points, while the biggest jump in the segment came from Chase Bank which increased its market share by 1.1 percentage points to 2.98 per cent.

CfC Stanbic dropped to the mid-tier category last year after falling below five per cent in market share, replaced in the top tier by Commercial Bank of Africa.

READ: CfC Stanbic loses top-tier bank classification to CBA

Even though the top tier banks have ceded market share to mid-tier counterparts, the top three in market share — KCB, Co-operative and Equity — have still managed to grow their assets and deposits faster than their large peers, at 18.5 per cent against the rival’s 12.4 per cent.

This has been attributed to their wider reach in agents and branches.

Last year, there was a 52.4 per cent increase in the number of approved agents to 35,789, of whom 90 per cent were concentrated in the three top banks.

“The bigger banks are, by their wider reach, able to collect deposits at rates of between 1.8 and 2.8 per cent, therefore, can comfortably lend at nine to 10 per cent and still make a good spread. “This is compared to mid-tier lenders who are forced to offer between 2.8 and four per cent for similar deposits,” said Standard Investment bank head of research Francis Mwangi.