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Why Actuaries will be key to Kenyan banking sector growth


The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG

Kenya’s banking industry outlook shows a myriad of risks necessitated by weaker global and domestic conditions, projecting lower growth rates in the long run.

The industry players have identified the emergence of new risks, volatilities, public debt sustainability, and rising inflation as key areas that will address these concerns.

Bankers have shown resilience in the wake of these challenges buoyed by adequate capitalisation and liquidity levels.

The sector registered KES6.024 trillion in total assets in 2021, which is an 11.4 per cent improvement from 2020.

Still, it is anticipated that the growth rate will slow as highlighted by the industry’s lower price-to-earnings ratio compared to the previous years.

In its State of Banking Report 2022, the Kenya Bankers Association (KBA) says that sustainability, credit, and pricing framework risks are the ongoing challenges that have kept the banks' growth rate constrained.

It then behoves the sector’s players to adopt and implement efficient and resilient business models to mitigate this.

Inadequate implementation of pricing frameworks has led banks to be cautious in accommodating risk in credit pricing, muting loan growths.

According to the report, efforts should be geared towards any efforts to boost credit extension to the private sector and support the fragile economic recovery.

This will be premised on a stronger shift in the pricing conditions or frameworks to allow effective pricing of risk, providing an incentive for banks to price in risk and unlock credit.

Despite acknowledging environmental risk exposures in the banking sector, and the availability of distinct legislative and institutional framework catering to social and environmental protection and management in Kenya, there remains several gaps and challenges which have a huge implication on the risks they are exposed to, according to a study conducted by KBA, FSD Kenya and the International Union for Conservation of Nature (IUCN).

Some of these challenges identified by the study include inconsistencies in the existing environmental regulations, institutional overlap with conflicting roles of different government agencies, effective public participation in the undertaking of environmental assessments as required by law, institutional challenges such as deficient environmental and social impact assessments, unethical behaviour among clients, and unfavourable business climate for the manufacturing sector making it unsustainable to comply with the requirements of the Environmental Management and Coordination Act (EMCA), 1999 and it's subsidiary legislations.

During the 7th Annual Actuarial Convention held in November 2022, actuaries have been called upon to use their quantitative and technological skills to aid the banking sector to navigate through some of these challenges.

The introduction of the Banking Working Party - to be premised within The Actuarial Society of Kenya (TASK) – will see actuarial professionals hold hands with their counterparts in the lending sector to come up with solutions that will better it.

Gladly, there are local banks that have hired in-house actuaries to navigate through some of these challenges and opportunities.

Also, institutions such as the Institute and Faculty of Actuaries (IFoA) and the Actuarial Society of South Africa (ASSA) have developed Banking specialisms that will develop actuaries who will be able to make judgements about banking risks; contributing to the management of risks in a bank, making an assessment of the bank’s capital and liquidity adequacy allowing for its risks, and to the development of the bank’s strategy.

Through its Taskforce on ESG, TASK and FSD Africa are also guiding the local financial industry in sustainable investment practices.

This is by driving and supporting the readiness of the sector in managing Environmental, Social, and Corporate Governance (ESG) risks and in supporting green finance.

By tapping into these actuarial resources, Kenyan banks will be able to stymie the slowed growth rate by creating and distributing a range of financial products and services that deliver both investable returns and environmentally positive outcomes.

John Njiru is the Secretariat at The Actuarial Society of Kenya. [email protected]