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KCB lays off staff as lenders face tough test in digital era

KCB GROUP CEO & MD Kenya Joshua Oigara displays the 2016 Integrated Report to the shareholders during the 46th KCB Group PLC AGM at Safaricom Indoor Arena.

The decision by Kenya Commercial Bank (KCB) to lay off staff so as to save Sh2 billion a year in salaries has reactivated debate on if banking halls still have a place in modern banking. 

In a circular sent to staff by KCB Chief Executive Joshua Oigara on the eve of the lender’s Annual General Meeting, the CEO said the bank had been forced to rethink its business model owing to the effects of the interest rate caps.

 “The business landscape dictates that the future belongs to leveraging automation, digitisation, Fintech partnerships and collaboration to sustain growth and enable customers to go ahead,” Mr Oigara said.

“Therefore a mind shift is essential to be agile in adopting and embracing current business models as well as promote efficiencies in the current environment.”

INTEREST RATE CAP

Although the bank did not indicate how many employees are targeted for lay-offs in the press release that it sent out yesterday, sources said about 500 will be axed.   This could be the biggest staff cutting exercise to face the banking industry in recent times.

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At yesterday’s AGM, KCB Group Chairman Ngeny Biwott said they expect the effects of the interest rate regime to be felt fully in 2017. The law requires lending rates not to exceed four percentage points above the base rate. 

And while it is debatable if the move by KCB is as a result of the interest rate caps, the fact that the biggest local bank by assets is retrenching is enough to send alarm bells ringing on what lies ahead.  The lender has an asset base of Sh595 billion.

Since the signing of the interest rate capping law in August last year, banks have limited customers credit, fired employees, and limited expansion.  

This week, the lenders got a boost when the International Monetary Fund (IMF) piled pressure on the Government repeal the rate caps.

“These controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years,” said the IMF.

The Government also recently said it would re-look at the law but it is unlikely this will happen before the elections in August since doing so could have political consequences as a repeal could be unpopular. The job cuts, however, began way before the rate caps in 2014 after a proposal by global consultancy firm McKinsey & Company persuaded Cooperative Bank to reduce its workforce by 10 per cent to the current 3,600.

Yesterday, the Kenya Bankers Association (KBA) chief executive Habil Olaka told Weekend Business that the new operating environment has left banks with no option. “It is a matter of survival in order to operate in the new environment,” he said.

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“Banks are now trying to identify where they can be efficient by re-looking at their business model,” he said. So far 10 banks have announced layoffs in the last six months, cumulatively sending home 1,700 employees.

Next week, Ecobank will complete the shutting down of a third of its branches as part of a process that began in January. The branches that have so far been shut down are Chambers, Ongata Rongai, Gikomba, Embakasi, Thika Road Mall (TRM), Meru, Kitale, Busia and Malindi branches. Ecobank will remain with 20 operating branches.

During the same month, Bank of Africa announced the closure of 12 branches while in December the National Bank of Kenya announced plans to lay off staff and offered incentives for early voluntary retirement.

Sidian Bank also announced that it would reduce its workforce by 108 employees, saying it is looking at using technology to deliver services to customers. Family Bank is also downsizing, while Standard Chartered plans to lay off about 600 employees.

MOBILE BANKING

Experts say the real reason behind the downsizing could be that banking halls are no longer as efficient as they were previously owing to the influx of mobile and agency banking. On Wednesday the Kenya National Bureau of Statistics (KNBS) said 85 per cent of Kenyans are mobile subscribers.

“Mobile money subscriptions per 100 inhabitants stood at 71 in 2016 from 61 in 2015. The value of money transacted through mobile phones increased from Sh2.8 trillion in 2015 to Sh3.4 trillion in 2016,” it said in the National Economic Survey 2017.

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Erick Munywoki, the Head of Research at Sterling Capital, says, “Banks are looking at a way of growing revenue without increasing the operating costs because in the past operating costs increased with interest rates and profits, but now the rates are not growing.”

“But this does not mean banks will not open new branches. The banking hall still has a place in the sector but opening and running one will be driven by location and not a need to increase customers,” he says.

 

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