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THE POWER OF M - CBA feels the force.

Summary: In 2011, the Commercial Bank of Africa (CBA) was only one of Kenya's medium-sized banks; two years later, it has risen to become the second-largest retail bank in the country. What brought about this extraordinary change?

Wanjohi Kabukuru in Nairobi tells the story.

In September 2011, the Commercial Bank of Africa (CBA) had 34,884 deposit accounts. It did not feature in the list of the top six Kenyan banks. Then, in November 2012, CBA partnered with cellular phone operator Safaricom and launched an M-banking platform called M-Shwari (Swahili for 'smooth mobile banking') and spectacularly changed the power structure.

In this arrangement, Safaricom's subscribers registered on M-Pesa were eligible to open accounts with CBA and deposit, withdraw and even access loans through their mobile phones. In September 2013, CBA's deposit accounts had risen to over 5,000,000. This rapid rise by CBA has made it Kenya's second-largest retail lender after Equity Bank.

CBA has upstaged Kenya Commercial Bank (KCB), Barclays Bank of Kenya (BBK) Co-operative Bank of Kenya (CBK), StanChart Bank and CFC Stanbic and now the 'big six' of Kenyan banking has become the 'big seven'.

This change in ranking now makes nonsense of the rankings released mid last year by the Central Bank of Kenya (CBK) which placed 16 banks in the 'medium-size' category and 21 banks in the 'small banks' category. It also means that the respective market shares will change. Previously, the large banks controlled 79.5% of all loan accounts; medium-sized banks held 14.8% and the small banks contented themselves with the remaining 5.7%. With the entry of CBA into the big banks' club, the arithmetic is bound to change.

In linking up with Safaricom, CBA followed the example of Equity Bank, which had pioneered this model in 2010 when it launched M-Kesho ('mobiletomorrow'), which saw its depositor base grow to 6,500,000, making it the market leader.

The Financial Access National Survey 2013 made some interesting points about mobile money transfers. It found out that more than double the number of adults use mobile phone f inancial services as compared to banks: 11.5m adults use mobile phone money transfers as opposed to 5.4m who use banks. From 2009 to 2013, the usage of mobile phone financial services more than doubled from 28% to 62%, the survey notes. The survey also found that the exclusive use of informal financial institutions has decreased for both men and women, although women lag behind men in their use of usage of formal institutions. Nairobi and Central regions lead in the number of adults with formal access to financial services and usage of mobile money transactions.

Innovation the watchword

Kenya's financial sector is characterised by a constant stream of innovative products, applications, rising profits and expansion into untested markets. According to the Central Bank of Kenya, the banking sector is made up of 43 commercial banks - 11 of which have cross-border branch networks totalling 282 branches. This regional investment has earned the 11 banks involved profit before tax of some Kshs5.1bn ($17m).

Kenya has one housing finance company, five representative offices of foreign banks, eight deposit-taking microfinance institutions, two credit reference bureaux and 112 foreign exchange bureaux.

The CBK argues that the banking sector will sustain its growth in 2014 due to regional expansion and the domestic potential created by Kenya's new governance system - which is the creation of 47 new administrative counties led by governors who will directly control 40% of the central government's budget.

But Kenya does not just lead the region's financial sector with its robust banking alone. The Kenyan insurance industry also leads within the East African Community (EAC) region. Assets and investments of the insurance industry grew by 30% in 2012, reaching $3.5bn and $2.8bn respectively. As of December 2012, the Insurance Regulatory Authority (IRA) had licensed 45 insurance companies, three reinsurance companies, 4,374 insurance agents, 158 insurance brokers, 10 risk managers and 23 medical insurance providers among others involved in the insurance business.

A 3.1% insurance penetration and a 26.1% insurance density are the two performance indicators that have been cited by the IRA giving Kenya a lead in the region. The asset base of the industry has steadily grown, averaging 13% in the last five years. This healthy growth of assets is indicative of the diversified risk portfolio, expansion and the industry's overall stability.

The impressive growth of the insurance industry illustrates that the insurers are capable of fulfilling their obligations to policy holders when called upon to do so. Factors that have contributed to this growth include a growing middle class demanding high-value services; increased demand propelled by awareness; launch of innovative and affordable insurance packages and the licensing of new companies.

Pensions politically sensitive

One of the most politically sensitive areas of the Kenyan financial sector has been the pension industry. Though pension coverage has stagnated at only 15% of the total labour force, the sector's assets, which reached $6.4bn in 2012 from $5bn in 2011, have always at t racted intense at tent ion f rom politicians. There are 1,262 retirement schemes with a total membership of 1.7m. Of the $6.4bn, the National Social Security Fund (NSSF) controls $965.6m and the remaining $5.1bn is held by fund managers.

Like other financial sector players, the pension industry has experienced g row t h in assets which i s being attributed to the rise in share prices as a result of the improved performance of the stock market. A recent decline in interest rates has increased the value of bonds held by the various pension schemes. The top three assets of the industry sti l l remain government securities at 34.7%, quoted equities 23.8% and immovable property, which accounts for 18.5%. According to the CBK, these investments are within the statutory limits.

In 2012, assets held by savings and credit institutions (Saccos) amounted to $3.4bn from $2.9bn in 2011, which was an increase of 17.8%. Currently there are 7,540 registered societies, of which 4,047 are active, with 215 of them offering deposit-taking and quasi-banking services through Front Office Savings Accounts (FOSA). Within the last three years, some Saccos have provided services such as credit facilities through ATMs, savings accounts, and mobile money transfer services. The 'FOSA Saccos', as they are known here, have grown rapidly owing to their competitive advantage with interest rates that are below 9% and now control over 75% of the industry's sub-sector assets and deposits.

Overall, the Kenyan financial sector is expected to remain stable and record impressive growth in 2014 owing to the demands of a new Constitution, a new government and an expanded regional presence. The Financial Sector Stability Report of 2013 says: "We expect growth momentum to gather speed and vibrancy in the financial markets to resume supported by robust institutional, legal and infrastructure frameworks." ua

The banking sector is made up of 43 commercial banks

- 11 of which have cross-border branch networks totalling 282 branches. This regional investment has earned the 11 banks involved profit before tax of some Ksh5.1bn ($17m)

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Publication:African Banker
Geographic Code:6KENY
Date:Feb 17, 2014
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