Wealthy Kenyans snub small banks’ safes


Central Bank of Kenya. FILE PHOTO | NMG

Small lenders accounted for 4.6 per cent of the new bank accounts with more than Sh100,000 as wealthy savers preferred well-known brands in the wake of three mid-sized financiers being placed under receivership after failing to meet their obligations.

The 21 small banks — classified by the Central Bank of Kenya (CBK) as low-tier — had 6,155 new accounts with more than Sh100,000 of the 134,425 high-quality deposits that lenders gained last year.

The CBK data shows that small banks controlled six per cent of the high-quality accounts, down from 13.2 per cent in 2017 as depositors sought safety in larger institutions.

Depositors and investors in Kenya were rattled four years ago when the CBK took control of three mid-sized lenders -- Chase Bank, Imperial Bank and Dubai Bank-- after the banks ran into financial trouble.

This triggered panic withdrawals from smaller banks and a shift of cash to the larger lenders that were considered stable in what was dubbed “flight to quality”.

The Kenya Deposit Insurance Corporation (KDIC) — an independent State agency that manages deposit refunds in collapsed banks — last July raised compensation for depositors in collapsed banks to Sh500,000 from Sh100,000 to help ease the discomfort with the small banks.

But this has done little to boost the share of accounts with more than Sh100,000.

“We are coming up with risk-based premium model to enhance market discipline and create a level playing ground so that depositors can bank their money anywhere,” said Mohamud Mohamud, KDIC chief executive.

The low compensation had exposed wealthy savers to higher losses in the event of bank closures because the refund was not adjusted to take into account changing economic realities over the three decades.

The increase in compensation of up to Sh500, 000 was the first rise in 30 years.

Out of the three lenders placed under receivership, Dubai is facing liquidation but Chase Bank and Imperial Bank had their good loans and deposits transferred to State Bank of Mauritius (SBM) and KCB respectively.

The CBK data shows that the total number of high quality banks accounts in small banks stood at 100,805 last year from 208,704 at the end of 2017, representing a 52 percent drop.

This emerges despite the large lenders offering lower returns on deposits compared to the small banks.

The top nine banks including KCB, Equity, Co-operative Bank and NCBA Group accounted for 78.78 per cent of the total accounts holding in excess of Sh100, 000 last year, up from 71.1 per cent in 2017

Equity Bank leads with 377,148 accounts followed by KCB (280,186), Co-operative Bank (262,614) and NCBA with 122,535.

Standard Chartered had the largest proportion of high quality savings, with 31.45 percent of its 236,616 accounts having in excess of Sh100,000.

Medium sized ones’ share of quality accounts has reduced from 15.7 percent in 2017 to 15.24 percent. First Community Bank led the pack in losing quality savers over the past three years. Others are Paramount, Spire, Guardian, Kingdom and Consolidated Bank.

The number of bank accounts holding more than Sh100,000 rose by 134,000 last year in the face of uncertainty about jobs and incomes following the Covid-19 pandemic.

The CBK data show that the number of the high-quality accounts increased to 1.69 million in the year to December, reflecting a growth of 8.7 percent.

It was expected that layoffs, job cuts and closure of small businesses due to coronavirus-induced slump would cut the number of bank accounts with more Sh100,000, especially those held by salaried workers.

But the increase in the high quality accounts was the highest in three years and happened in the year consumers and rich firms stockpiled an extra Sh341 billion since the onset of the pandemic in Kenya.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.