Markets & Finance

Agency banking transactions rise three-fold in 2012

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Pedestrians walk past an Equity agent shop in Nairobi. The Central Bank of Kenya’s annual supervision report for 2012 shows more bank customers are carrying out transactions through agents. FILE

The value of transactions handled by commercial bank agents more than tripled to Sh152 billion last year, helping the lenders to mobilise cheap deposits while also keeping their staff costs in check.

The Central Bank of Kenya (CBK’s) annual supervision report for 2012 shows more bank customers are making cash deposits, withdrawals and other transactions through agents, fundamentally changing their mode of interaction with banks.

“Tremendous growth has been evidenced in agency banking conducted by commercial banks. As at December 2012, there were 10 commercial banks that had contracted 16,333 active agents facilitating over 38 million transactions valued at Sh195.8 billion,” said the report.

It shows that as at the end of last year, Sh152 billion worth of transactions were done at agents’ outlets, up from Sh46.6 billion in 2012 — a three-and-a-half times increase.

The number of transactions grew by nearly the same rate (3.4 times) over the time standing at 30 million from 2011’s 8.76 million. The agency banking model is still in its infancy, having started in 2011.

Commercial banks are big beneficiaries of the rapid growth of agency outlets, which have helped cut costs on expansion and staffing.

Agency outlets now outnumber bank branches, having stood at 1,272 as at end of December. This translates to bank customers having access to about 13 agents for every branch available.

CBK says agents helped banks to marshal deposits, which grew by 15 per cent in 2012 to stand at Sh1.7 trillion from Sh1.48 trillion in 2011.

KCB and Equity Bank, the two largest lenders and the early adopters of the agency banking, said during release of their annual results that the model has been a boost.

“Our focus this year is to consolidate our business and leverage our technology platforms and partnerships as opposed to brick and mortar expansion to drive business growth and serve our customers,” said KCB chief executive Joshua Oigara, when the lender released its first quarter results.

KCB had 5,035 agents as at the end of March 2013. It said these third parties, together with the mobile banking platforms used by more than 800,000 customers, account for 15 per cent of all transactions.

Equity Bank had 6,892 agents at the end of the first quarter and similar to KCB, has said that agency banking is a key growth driver.

“Diversification of the bank’s portfolio along with strategic global and local partnerships, regional expansion and increase in the number of Equity Bank agents will drive growth and deepen the bank’s penetration into the market,” said Equity Bank chief executive James Mwangi at the third quarter results announcements.

Analysts said that in addition to making it easier to collect deposits, agents are reducing costs for commercial banks.

Directly, agents are saving commercial banks the cost of putting up a fully-fledged branch, the staffing costs related to that bank and other ancillary costs such as cleaning and maintaining an Internet connection.

Equity Bank said it plans to roll out the model to other regions, where the laws allowing its operation are in place.

“The bank incurs no staff and rental costs, only commission to agents. The bank has also rolled out the model in Rwanda, with Tanzania roll out expected within the year,” said a research note by Old Mutual Securities.

The agency banking model was introduced by CBK to give more Kenyans access to banking services.

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