Sidian Bank has announced plans to shed a fifth of its workforce, deepening fears of imminent layoffs in a sector facing squeezed profit margins following the recent passage of a law capping the cost of loans.
Family Bank only weeks ago also announced that it would be laying off an unspecified number of employees in a bid to cut costs, pointing to a wider strategy in the industry to cushion the lenders’ bottom lines.
Sidian Bank said in an announcement on Monday it would deploy technology to improve efficiency in place of the retrenched employees.
The bank, majority owned by Centum Investment and formerly known as K-Rep, says it will lay off 108 staff out of the total workforce of 560.
Managing director Titus Karanja said the layoffs will cost about Sh70 million. The lender has projected a 40 per cent drop in net earnings following enactment of the interest rates control law which cut the wide spreads previously enjoyed by Kenyan banks.
The Nairobi Securities Exchange-listed Centum owns 74 per cent of Sidian Bank. The lender currently spends Sh70 million on labour costs monthly, according to Mr Karanja.
“Price is no longer a distinction under the interest rate caps regime. It is now about efficiency,” he said at a briefing.
The bank plans to begin piloting a mobile-based loan app in November ahead of full deployment next year.
“This is a critical channel as it is faster and cheaper. Going to next year we will be fully capable of offering mobile loans,” added Mr Karanja.
However, he said the lender still plans to hire more staff to “plug key skills gap”. The bank also has plans to open new outlets at The Hub, Two Rivers Mall, Sameer Business Park and Nairobi’s downtown River Road.
Sidian has hired a total of 90 new staff recently, most of them poached from rivals such as the Chase Bank in a bid to grow its small and medium-sized business clients.
Analysts reckon that job cuts in the banking sector will hit small banks hardest, in view of the new law setting the ceiling for lending rates at four percentage points above the benchmark rate and sets the floor for deposit rates at 70 per cent above the base rate.
“Banks are going to find more ways to cut costs, and it is easier to reduce headcount and branch costs than it is to reduce cost of funding. The smaller banks were always going to be hardest hit,” said Deepak Dave, risk management expert at Riverside Capital.
“Until the cost of funding cycle is changed, this will spread throughout the sector.”
Cytonn Investments said “small banks will find it difficult to operate in a compressed margin environment”.
“Banks are adopting efficient alternative channels such as tech platforms in order to manage cost and protect their profitability,” said Maurice Oduor, Cytonn investment manager.
“I think banking sector is now ‘price takers’ and therefore efficiency and cross selling are the metrics that are going to determine the profitability of banks in Kenya going forward.”
George Bodo, head of banking research at Ecobank Capital told the Business Daily: “You should look forward to more banks cutting staff. A lot of banks are shedding risky products such as consumer business.”