Equity Group CEO James Mwangi captured the big digital shift in the banking sector when he said that banking had stopped being a place where people go to and is now what they do on their phones.
The digital shift in the banking sector is just one bit of the transformation that has been happening over the past 60 years to build institutions that now do much more than just taking deposits and dishing out loans.
While the deposit base had by March hit Sh4.828 trillion and the loan book at Sh3.85 trillion, the story of Kenya’s banking sector in powering the engines of the economy is one whose length and breadth cannot be summed up in just the two numbers.
Now names such as KCB, Equity Group and Cooperative Bank of Kenya are topping the charts of Kenya’s banking sector that started with a dark past where Africans were not even allowed to have bank accounts.
Such local banks, including many others that collapsed along the way, managed to speak to the aspirations of a young nation by seeking out the low-income earners and even those in the informal sector.
The Kenyan banks have grown over time, financing millions of dreams into a reality. Even for the Kenyan government, the lenders have been useful and currently account for 45.56 percent or Sh2.06 trillion of the Sh4.53 trillion domestic debt.
The sector was by 2021 contributing Sh49.48 billion in annual taxes to the government, making it one of the leading tax-paying sectors in the economy.
From the now unimaginable times such as when customers were required to give notices of between one to three weeks to withdraw their money or when cheques took more than a month to clear, the banking sector’s evolution tells a story of a nation on the move.
Transactions can now take just a click on the phone, without worrying about the time the bank branches will close.
And now ATMs, the revolutionary technology that Standard Chartered Bank Kenya pioneered in 1989 as the face of convenience cannot match the efficiency of mobile banking. But it all happened in stages.
From 1896 when the National Bank of India established a branch in Mombasa to 1934 when two bank branches were opened in Kakamega during the gold rush in the town, the banking sector has been on steady evolution over time.
The Kenya Bankers Association (KBA) was registered in July 1962 to help members in negotiating terms and conditions of service of its unionisable employees and has now grown to accommodate microfinance banks.
Part of the evolution, which birthed fully locally-owned banks, rode on the feeling that indigenous banks were not aligned with the spirit of the nation and the aspirations of its people especially after independence in 1963.
According to the Central Bank of Kenya (CBK), the first Kenyan currency notes went into circulation in 1966.
CBK was established three years after independence and issued the first Kenya coins on April 10, 1967.
The coins were in denominations of Sh1 and Sh2 and five, 10, 25 and 50 cents.
According to the CBK, Kenya’s first fully locally-owned commercial bank was the Co-operative Bank of Kenya, which was initially a cooperative society.
Co-op Bank served the needs of growing farming communities and started operations in 1968.
In the same year, the National Bank of Kenya, now a subsidiary of KCB, became the first fully-owned government bank.
From a start-up capital of Sh255,000, supplemented by a Sh214,000 interest-free government loan repayable in ten years, Co-op has never looked back.
In 1971, the Kenya Commercial Bank, now trading as KCB Group was formed following the merger of the National and Grindlays Bank, with the government owning a 60 per cent majority stake.
It immediately became the country’s largest bank in terms of deposits and number of branches. The government in 1976 bought the remaining 40 percent stake.
Not even the waves of bank collapses—12 between 1984 and 1989, 19 between 1993 and 1995, six in 1998, five between 2000 and 2005 and three between mid-2015 and 2016—stopped the growth of the sector.
Every wave of collapse seemed to send stakeholders to the discussion table, only emerging with lessons that have served to improve the sector for the benefit of the economy, shareholders and customers.
Even turbulent moments such as price controls, fixed exchange rates, interest rate caps and Covid-19 have seen banks emerge even stronger.
And every step banks have taken along the way, technology has always been tagged along, like in June 1968 when National and Grindlays Bank installed a mainframe computer at its headquarters in Nairobi to coordinate all its branches.
Technologies such as the Swift System that KCB introduced in Kenya in 1994 to allow the transferring of money to other banks worldwide and the introduction of mobile banking by Co-op in 2004 only signalled a sector out to try new possibilities.
Co-op Bank in 2009 also introduced an agency banking model, riding on Safaricom’s M-Pesa service that had started in 2007.
Other banks soon followed, demonstrating the quick thinking that has kept the sector growing.
The Kenyan banks have now entered a phase of mergers and acquisitions, with major players such as KCB and Equity now deepening their stake in the East African economy by splurging multi-billion shillings on deals.
CBK data showed Kenyan banks had 552 branches with Sh1.62 trillion assets in the EAC market as at December 31, 2022, directly employing 11,125 people. The growth story continues.