Kenya’s banking sector is grappling with a painful wave of mass retrenchment of workers, with 1,000 having lost their jobs in three months.
The retrenchment, which is attributed to the September cap in cost of loans chargeable on borrowers, exceeds the 711 bank employees who lost their jobs in the whole of last year.
More than six banks have announced retrenchment plans in the three months as others are also said to be quietly sending home hundreds of workers.
Increased adoption of technology is also behind the banks’ push to release workers in a bid to trim their payrolls.
Top on the chopping list is the local unit of Standard Chartered which plans to lay off about 600 workers, equivalent to a third of the bank’s total workforce, according to a filing made with the bankers’ labour union.
StanChart on Wednesday announced that 300 staff would be rendered redundant with the closing down of its Nairobi shared services centre, whose functions will be migrated to Chennai, India.
The Nairobi centre, with a staff of 350, previously provided real-time support such as accounting, reporting, systems maintenance, and information management support to StanChart’s regional subsidiaries in Uganda, Tanzania, Zambia and Botswana and South Africa.
Equity Bank a fortnight ago revealed it had sent home 400 workers in the nine months to September, continuing a trend that started last year when the lender shed 660 jobs through voluntary exits.
Ecobank has also disclosed that it will retrench an undisclosed number of employees following last week’s decision to close nine out of its 29 outlets in Kenya, cutting its branch footprint by a third.
“There may be some employees who will be rendered redundant and their redundancy will be handled as per the applicable laws of Kenya,” the Togo-based lender told the Business Daily.
“We have communicated to both the regulator and BIFU [the Banking Insurance and Finance Union] on the effects of closure of the nine branches,” Ecobank said.
Three other lenders, namely Family Bank, Sidian, and Islamic financier First Community Bank, have written to BIFU, notifying the union of an impending retrenchment.
“Our concern is that the redundancies are conducted within the law,” said Tom Odero, organising secretary of the trade union representing financial sector workers.
The ongoing job cuts in banking halls comes barely two months after passage of a law capping the cost of loans – effectively cutting the wide spreads previously enjoyed by lenders in Kenya.
Banks are now by law not allowed to charge interest rates above four percentage points of the Central Bank Rate (CBR). That translates to a ceiling of about 14 per cent at the current rates.
The lenders must also pay interest on deposits equivalent to 70 per cent of the CBR.
Swelling wage bills
The mass retrenchment of workers in Kenya’s banking sector also comes at a time lenders have flown into headwinds related to swelling wage bills, surging volume of toxic loans, closure of risky products, and tumbling share prices at the Nairobi bourse.
“Banks will find it difficult to operate in a compressed margin environment. Staff cost is one of the significant cost items in any banking institution and therefore to achieve efficiency, banks will have to cut down staff numbers,” said Maurice Oduor, investment manager at Cytonn.
The lenders are banking on technology — automating processes, going paperless, and use of channels such as mobile and Internet — with a view to cutting costs and improving efficiency.
Sidian Bank, formerly known as K-Rep, is currently laying off 108 out of the total 560 workers in an exercise expected to cost about Sh70 million.
The Centum-backed tier III bank will instead use digital platforms, especially mobile banking, to tame costs even as it projects a 40 per cent drop in full-year net earnings, managing director Titus Karanja said in an earlier interview.
Among the nine branches Ecobank is shutting down are Nairobi’s Chambers, Ongata Rongai, Gikomba, Embakasi, Thika Road Mall, Meru, Kitale, Busia and Malindi.
“We are focusing more on innovation and technology for delivery of our products and services to our customers in an easy and convenient way whenever and wherever they are,” said Ecobank Kenya managing director Sam Adjei.
Ecobank’s staff costs increased 5.6 per cent to hit Sh1.12 billion in the period to December 2015, with rental charges for its branches going up by a tenth to Sh191.3 million.
The Kenyan subsidiary last year returned to profit zone after a three-year loss-making streak.
The Togo-based lender entered the Kenyan market in mid-2008 when it bought a 75 per cent in the loss-making East African Building Society (EABS) owned by the Pandit family.
First Community Bank (FCB) last week notified employees of an imminent round of job cuts, blaming the move on the new law capping the cost of loans and eating into its margins.
“In the last 18 months, we have seen many changes in the banking industry. Most recently the Banking (Amendment) Act was signed into law,” said First Community Bank chief executive Fazal Saib in a leaked memo.
“The list of staff that will be impacted will be finalised in the next two weeks and communication will be made to them individually.”
FCB’s wage bill more than doubled to Sh241.4 million in the half year to June 2016 from Sh116.1 million a year earlier.