Barclays Bank of Kenya (BBK) #ticker:BBK this week announced plans to shut down seven of its branches beginning October 1, raising fears that hundreds of jobs in the targeted units may be lost. The bank last month also rolled out a voluntary early retirement scheme that is expected to get about 130 people from its payroll as it moves to trim costs. The Business Daily talked to the bank’s chief executive, Jeremy Awori, on the road ahead and how the lender plans to navigate the tough business terrain. Here are the excerpts.
Why are you closing branches?
Technically what we are doing is merging branches. We have invested significantly in overall infrastructure over the last three or four years. That was done to ensure we remain relevant to customers. For example, we have replaced over 230 ATMs. We have invested in Internet banking, mobile banking and you have seen agency banking. We want to make banking convenient for customers in line with what they want. We have seen over time a change in our transaction profile where we probably had 20 or 30 per cent of transactions going through alternate channels and that number is almost 70 per cent. Essentially what that has meant in real terms is that transactions going through branches have been on the decline. So it was not efficient to have some of these branches like in the case of Moi Avenue [in Nairobi] where just a few metres away is Queens Way branch, which is also a bigger branch.
Is there the risk of congestion at a time when customers are very choosy?
If you take Moi Avenue and Queensway we have empty teller cubicles which customers were complaining about. We will fill those empty cubicles with the tellers from Moi. The beauty of the merger is you actually have more resources to deliver services. We are very mindful of that. We have already invested in other technologies; things like cash counters, cash deposit ATMs, adding infrastructure, so we can offer better services at the new location.
You recently announced a voluntary early retirement scheme for your staff, affecting 130 people. Is that the final tally or do we expect more staff to be released?
It is not a perfect science because you don’t know who is going to apply. It is also driven by how much funds are available; we don’t have limitless resources to spend in releasing people. Indicatively it was in the region of 130, it could be plus or minus, depending on who applies and how much we are willing to spend but as a general rule we want to minimise any kind of job losses, that’s why we’ve made it voluntary. It’s not a forced redundancy.
How much have you set aside for the whole exercise and how are you ensuring those affected get a smooth transition?
One thing that I will state is we take such a process seriously and have very robust and fair processes behind it. We involved all stakeholders. We want to make sure those leaving have success outside of Barclays. Sometimes people fear the worst and all I can tell them is what I know as managing director of this firm. I am telling them to keep calm. We are not doing this because we are financially in dire straits but because of customer needs.
What is the status of your reorganisation following the reduction of Barclays Plc’s shareholding in Barclays Africa?
Essentially the transaction is now almost complete. Barclays Plc remains the single-largest shareholder in the bank but it is not the majority shareholder — that’s the difference. We are now working through the transition process to transit from services that Barclays Plc has traditionally provided. That process is ongoing and is going to take the next three years and beyond. The important thing to remember is that Barclays is not cutting loose but is retaining a stake because it does see the advantage of being a shareholder in a growing business and region. We have always said Barclays Plc did this because of regulatory and accounting reasons. So the process is almost complete from a transaction perspective.
Why have banks like you reduced lending to customers in the wake of the rate capping law? Is it a ploy to arm-twist the authorities into changing the law?
Banks like other economic entities are in business to give decent returns to shareholders. Otherwise those shareholders will take away their money and invest where they can get better returns. The effect of the interest rate law was that it took away the ability to price the risk in one swoop. What a lot of banks have said is we are going to slow down lending in those sectors. But banks have also said if I’ve got the opportunity to lend to government through government securities at 10, 11, 12, 13 per cent almost risk-free why would I lend to a risky borrower at 14 per cent? At Barclays, however, we have not necessarily reduced our risk appetite. In fact we are lending faster than the market. It is not a thing of we are going to switch off the taps so that we can force them to do it.
Is it sustainable for banks to concentrate their lending to government only?
I don’t think it’s the prudent thing to do. Otherwise why do you have a bank? A bank is supposed to be an intermediary to take deposits and lend to people who need the money to finance businesses. What we are seeing is a short-term reaction by banks to try and boost their income, which is logical. And we are seeing the realities of a government that needs to borrow. I don’t think you can do it long term.
Some experts say the Central bank of kenya is hamstrung in its monetary policy having made the mistake of picking CBR as the applicable base in pricing lending. It had the option of picking the KBRR, which takes into account both the CBR and the prevailing Treasury bill rates. What is your view?
To a certain extent that may be manifesting because before, the CBR was an indicative rate. It wasn’t the rate at which lending was based. Now they’ve linked the two. And now you’ve got this challenge where you have inflation growing and typically once inflation grows they would increase rates to help manage inflation. Now in this instance people are saying, is there a conflict? By increasing interest rates are you going to slow down credit growth even further? There is a school of thought that actually says if you increase interest rates maybe more lending will happen, not less lending because you get a better return than you did with lower interest rates. That is something the central bank has to grapple with. The CBK is worrying itself with monetary policy and I think they are quite astute about this risk. I am sure there will be a review over time as to what is the most effective benchmark to use to price lending.