Bank staff bear the brunt of job losses

There's a wave of job cuts and company closures amid bullish projections of GDP growth. PHOTO | FILE

What you need to know:

  • Banks have laid off hundreds of employees as a number of companies close shop citing a host of reasons, key among them a harsh business climate and unfair competition from cheap products.

Economic experts are at pains to reconcile two stark realities that are in conflict in Kenya’s economic scene: a wave of job cuts and company closures amid bullish projections of GDP growth.

The Bank of Africa-Kenya is the latest lender to announce impending staff layoffz after it shut down 12 branches or a third of its 42 outlets.

Standard Chartered, Ecobank, Family Bank, Sidian, and Islamic financier First Community Bank are currently retrenching staff against the backdrop of an era of interest rate ceilings.

Tyre maker Sameer Africa, Eveready East Africa, and Cadbury are some of the companies that have slammed brakes on their manufacturing plants in Kenya in the past three years.

It is ironic that all these depressing happenings are taking place at a time when economic prospects are bright.

Kenya’s economy is projected to have grown at 5.9 per cent in 2016, up from 5.6 per cent in 2015, according to a World Bank update.

Glaring mismatch

Sayyida Jaweed, a manager at Grant Thornton, said the glaring mismatch is due to the fact that a majority of Kenyans are in the informal sector, which is not well captured in government statistics.

“The incongruence stems from the fact that the economy from which millions earn a living is largely ignored by official data gathering and analytical efforts,” Ms Jaweed told Smart Company.

“Kenya’s economic growth is services-driven, and services produces far [fewer] jobs than manufacturing, for example.”

Ms Jaweed added: “Until the manufacturing sector is given the attention it requires such that the economy is driven by export-led manufacturing, the ‘jobless growth’ challenge will continue.”

Standard Chartered Bank plans to lay off about 600 workers, equivalent to a third of the bank’s total workforce, after the lender outsourced non-core functions to India.

The British high-street lender closed down its Nairobi shared services centre and migrated the unit’s functions to Chennai, India.

Lower bank profitability

The Nairobi centre, with a staff of 300, previously provided real-time support such as accounting, reporting, systems maintenance, and information management support to StanChart’s regional subsidiaries in Uganda, Tanzania, Zambia and Botswana and South Africa.

Clive Akora, director in charge of tax at KPMG, said Kenya needs to deal with structural challenges such as the high cost of electricity, prohibitive transport costs, and relatively high labour charges, which hamper growth.

Ecobank has also said it will retrench an undisclosed number of employees following last week’s decision to close nine of its 29 outlets in Kenya, cutting its branch footprint by a third.

Among the nine branches Ecobank is shutting down are Nairobi’s Chambers, Ongata Rongai, Gikomba, Embakasi, Thika Road Mall, Meru, Kitale, Busia and Malindi.

Digital platforms

Sidian Bank, formerly known as K-Rep, is currently laying off 108 staff out of its 560 workers in an exercise expected to cost about Sh70 million.

The Centum-backed tier-three lender will instead use digital platforms, especially mobile banking, to tame costs even as Sidian projects a 40 per cent drop in full-year net earnings, managing director Titus Karanja said in an earlier interview.

“As the banks face an era of lower profitability, they are looking critically at their cost base for areas where they can make savings.

One area is through leveraging on technology to automate a number of manual processes, leading to redundancies,” said Mr Akora in an interview.

Law capping rates

Sharia-compliant lender First Community Bank last month retrenched 106 employees or a third of its workforce, blaming the move on the new law capping the cost of loans and eating into its margins.

Cytonn Investments manager Maurice Oduor warned that the banking sector layoffs are likely to have ripple effects on other sectors given the interconnectivity of various economic sectors.

“For example, the banking sector effect of the Banking Act Amendment will largely affect other sectors in terms of access to credit, which will reflect on the GDP growth,” said Mr Oduor.

Deepak Dave of advisory firm Riverside Capital said the full effects of the job cuts will be felt in months to come.

Mid-tier lender Family Bank last year began laying off an unknown number of staff as part of efforts to cut costs.

This fresh round of job losses in the banking sector comes shortly after lenders such as Co-op, National Bank, KCB, and Barclays, had shed more than 1,000 jobs in the last five years under “restructuring programmes” carried out by consulting firm McKinsey to trim their cost-to-income ratios.