Commercial banks are fighting for a share of the growing high-net-worth individuals seeking to spread their wealth in multiple local and overseas asset classes to maximise returns and cut risk.
The lenders are increasingly setting up wealth management units and spicing them up with exclusive products for the affluent as the bulging middle-class mints new millionaires.
Banks’ wealth managers say many wealthy individuals are keen on new and often sophisticated products as they seek to cut exposure in traditional portfolios such as real estate.
The rise in the demand for wealth consultants is also being linked to the passing of wealth from the older generation to the current generation that is seeking multiple asset classes around the globe.
The wealth managers’ view corroborates multiple reports including Knight Frank, Forbes, Wealth X and Oxfam that have shown a burgeoning class of the rich in Kenya.
Government reports have also been citing a ballooning middle class.
Dollar multimillionaires
Oxfam’s report released last month on the sidelines of the World Economic Forum in Davos, Switzerland indicates that the number of dollar multimillionaires in Kenya more than doubled between 2012 and 2022 after individuals with a net worth of Sh624 million ($5 million) and above rose to 1,890.
Paul Njoki, the head of affluent banking and wealth management at Standard Chartered Bank Kenya and East Africa, says the bank is witnessing a rise in demand for investment services as people become more moneyed.
“The investing community in Kenya is growing because people are having more money. The economy is growing and is creating wealthier people. It is a common thing that as economies grow the people become richer and want to build more wealth,” said Mr Njoki.
“There are more wealth advocates in the market as clients come out of the traditional investments classes such as land and livestock to more modern financial investments both locally and overseas.”
Stanchart Kenya’s wealth management unit has grown from Sh18 billion five years ago to Sh140 billion at the close of last year, highlighting its growing relevance to customers.
Elizabeth Irungu, the CEO of Absa Asset Management, a subsidiary of Absa Bank Kenya, says the transition of wealth from the older generation to the next generation could also be at play, in addition to more people becoming richer.
Knight Frank Wealth Report released last year showed the number of Kenya dollar millionaires rose by 39 percent to 3,362 on the back of young entrepreneurs making fortunes in sectors such as ICT.
Twenty-seven percent of the dollar millionaires or 803 of them are self-made and aged under 40, indicating new opportunities for young people in a country where those from wealthy families ride on inherited wealth to join the club of the rich.
“There is also the ongoing transition of wealth from an older generation to the new generation which is more learned. The older generation did mostly one asset class, like property, and it worked but this cannot work now,” said Ms Irungu.
“The world now is more global and the new generation wants exposure in other markets and multiple asset classes. It takes deep research and data analysis and that is how wealth managers come in to give value since investments come loaded with risks.”
There is a growing number of young millionaires and entrepreneurs who are making money in Kenya’s technology sector, especially fintech, with their key focus ranging from digital payments, loans and insurance to share trading and cryptocurrency.
They are also offering digital solutions in agribusiness, health and logistics, helping establish Kenya as East Africa’s hi-tech hub.
These firms have in turn attracted billions in funding from venture capital and private equity funds from developed countries, with the founders raking in millions from stake sales.
“As more people join the league of dollar millionaires, the demand and value of investment services also go up. It has been subtle but now it’s now more evident. There are a lot of positive things happening in the economy,” said Ms Irungu.
NCBA Group CEO John Gachora said in a phone interview that the lender established an asset management business in response to the growing number of customers that were seeking options to earn more on their accumulated savings.
“The middle class is demanding more from their banks. These customers have become more aware that they can earn better returns from a myriad of other options other than the foundational fixed deposit account,” said Mr Gachora.
Banks are riding on high trust dividends and deep distribution networks of branches and technology to give stiff competition to insurance firms that pioneered wealth management.
Mr Njoki says that while most clients were initially interested in just buying land, they are now coming to the bank to seek information on multiple investment classes.
“Clients are more aware they can invest in different risk categories both locally and overseas. Last year for instance we saw many of our clients develop interest in hard currency investments because they saw inflation checking in and the local currency sliding in value,” said Mr Njoki.
