Big banks face more competition – Business Daily
A customer is served at the Kenya Commercial Bank (KCB) in Nairobi on January 24, 2018. PHOTO | SIMON MAINA | AFP
The grip of large banks on the sector’s deposits and loans is easing, six years after the collapse of three small lenders caused a shift by customers to the safety of tier one players.
The concentration of both assets and liabilities has eased in the past two years, a survey by the Kenya Bankers Association (KBA) and data from the Central Bank of Kenya (CBK) shows, pointing to improved customer confidence in the lower tiers lenders as well as an increased ability by the smaller banks to mobilise deposits and disburse loans.
On the asset side, the share held by the top 10 largest lenders fell from 77.7 percent in 2019 to 75.3 percent last year, while their share of the loan book declined from 80.8 percent to 77.7 percent.
The top 10 banks’ share of industry deposits also fell, from 78.6 percent in 2019 to 75.3 percent by the end of last year.
“While the overall banking industry appeared to be dominated by large banks, measures of concentration across key bank lending and deposit markets point to gradually decreasing levels of market concentration, supported by the increasing digitisation of financial services,” said the KBA.
Smaller banks suffered from a crisis of confidence among customers between 2015 and 2016 when Imperial Bank, Dubai Bank, and Chase Bank all went under, locking in customer deposits and bondholder funds.
Many depositors, especially in tier three lenders vote with their feet and shifted their funds to larger lenders that they deemed safer havens for their money, boosting the balance sheets of these big lenders significantly.
The assets of Chase Bank and Imperial Bank were later taken over by Mauritian lender SBM Bank and KCB respectively, and the industry has not had any other lender collapsing.
Instead, smaller banks that have shown signs of distress or are looking to scale up have been taken over by their larger counterparts, assuring the market that depositors are unlikely to lose access to their funds on the scale seen in 2015 and 2016 going forward.
Fidelity Commercial Bank was taken over by SBM in 2017, National Bank of Kenya by KCB in 2019, Jamii Bora by Co-operative Bank in 2020, and Giro Commercial Bank by I&M Bank in 2017.
DTB also took over Habib Bank Kenya in 2017, while Nigerian lender Access Bank Plc bought out Transnational Bank in 2020.
The increased adoption of digital channels in the banking sector has also allowed small and medium-sized banks a bigger reach in the market than they would otherwise enjoy through their limited number of brick and mortar branches.
They are now able to mobilise deposits and lend more easily through mobile channels, negating somewhat the advantage tier-one lenders enjoyed previously through their large branch networks that are spread over a wider geographical area and a large workforce to disburse credit.
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