Watchdog probes banks for breach of competition rules

The competition watchdog is investigating whether banks have breached regulations by restricting consumers’ choice of products and service providers.

Competition Authority of Kenya (CAK) director-general Kariuki Wang’ombe said the probe is expected to clear or uphold long-standing accusations that the sector is organised in a manner that makes consumers unable to choose or switch between banks.

It is also expected to determine whether it is possible to compare the cost of products across banking institutions.

Mr Wang’ombe said the CAK had already completed the first phase of the probe, which focused on the market structure.

The authority concluded that the structuring is proper and adequate to enhance competition.

“In the second phase we are conducting market studies to determine whether the consumer issues are properly taken care of under the current practices,” said Mr Wang’ombe.

The CAK boss said one of the issues being investigated is whether there is information asymmetry that disadvantages the consumers.

The probe will establish whether banks give all the information needed on specific products and services.

Mr Wang’ombe said CAK will also be checking whether banks place hurdles for customers who may want to migrate from one institution to another.

He was responding to questions from the media after the launch of a CAK report based on a World Bank study on the state of competition in Kenya. A consumer issue that often arises relates to changes in lending rates. In the past banks have been accused of being too quick to raise rates but slow in reducing them when the general economic environment and the bench mark rate falls, a practice the director at the Energy Regulatory Commission Fred Nyang’ called “the rockets and feathers” phenomenon.

Mr Nyang’ was speaking on the energy sector at the launch of the report.

The banking industry has also been accused of making too much money despite the distress in other sectors of the economy.

Recently, Moody’s Investors’ Service released an analysis report – covering 32 banks in 11 African countries – which showed that Kenyan and Ghanaian commercial banks lead in returns to shareholders’ equity.

READ: Kenya, Ghana banks top equity earnings in Moody’s study

Banks from the two countries had returns of about six per cent, showing investors were able to get Sh6 out of every Sh100 they put in.

However, bankers have argued that the perception that they make a lot of money is misplaced because the sector is among the most regulated, with high capital requirements.

They have further argued that they have created large assets from capital hence it should not be surprising when they make billions every quarter.

“Being dominant is not a problem per se, according to competition rules. What we would have a problem with is abusing that dominance by stopping others from entering the market and putting your prices so low that it is below the average variable cost. And once a rival or potential is out of the business, you then increase prices,” said Mr Wang’ombe.