Competition watchdog investigates banks over pricing of their products

The competition watchdog is investigating banks over the pricing of their products in what could see far-reaching reforms in the sector.

The Competition Authority of Kenya is seeking to establish the extent of competition in Kenya’s banking sector, following concerns that interest rates spreads — at an average of between nine to 13 percentage points in the past five years — are too wide.

The survey will also look into the banks’ complex tariff structure, which makes prices of their services not easily comparable; with customers finding it difficult to switch from one bank to another.

The agency said on Friday in a Kenya Gazette notice that it had appointed a South African firm, Genesis Analytics, to carry out the inquiry.

Genesis Analytics advises firms in emerging markets on competition and is expected to rely on submissions from the public and reports to make its recommendations.

“The consultant will assess the market structure in the banking industry in Kenya,” said Wang’ombe Kariuki, the director- general of the authority, in the notice.

“It will identify barriers to competition in the banking sector, if any, and the consumer protection concerns.”

The study is expected to take three months. It will also investigate whether banks discriminate between different entities such as corporate firms and individuals when negotiating prices for loans to customers.

The Central Bank of Kenya’s Bank Supervision Report based on the 2012 financial results shows that six banks hold 54 per cent of market share for loans and deposits.

The top six banks earned 66 per cent of the total profit reported by the industry. The top 10 held 70 per cent of assets and deposits and made 82 per cent of the profits in 2012.

READ: High cost of loans sets banks on path to profit record

The authority says there have been complaints about concentration of market power in a few banks.

The inquiry will reveal whether this is indeed the case. Equity Bank, KCB Group, Standard Chartered, Co-operative Bank and Barclays Bank have for years maintained a stranglehold on Kenya’s banking market.

Cash-rich new entrants like Ecobank and UBA Bank have found it difficult to break into the top league.

Bankers and consumer organisations, however, hold sharply contrasting positions on the matter. While the Kenya Bankers Association (KBA) welcomed the study, it maintains the sector is transparent and competitive enough.

The association reckons the prevailing interest rate spread in Kenya is linked to the cost of funds and obstacles related to collateral such as the long period it takes to register land. But the Consumer Federation of Kenya (Cofek) maintained that the sector exhibits cartel-like behaviour.

It will be the first major probe undertaken by the authority since it replaced the Monopolies and Prices Commission, which operated as a department of the Treasury in changes that saw the government impose hefty fines on those in breach of competition laws.

Where a firm is found to have breached the law, the watchdog can have its directors jailed for five years or order payment of a fine of up to Sh10 million. The authority can also impose a financial penalty equivalent to 10 per cent of a firm’s sales.

Previously, market malpractices in Kenya attracted a maximum fine of Sh200, 000 or a jail term of up to three years for offending companies.

On the banking probe, the authority seeks information it will use to tighten laws and make interventions to boost competition and consumer protection in the banking sector.