Bank bosses see bright future with political pressure easing

Executives of Kenyan commercial banks have expressed optimism for brisk business in 2018 buoyed by easing political pressures and an improving economic climate, the latest market perceptions survey by CBK shows.

Kenya lost about 1,500 banking and insurance sector jobs in 2017, the first such drop in seven years that also defined how banks reacted to the interest rate capping law introduced in September 2016.

The lenders now see brighter prospects ahead, especially with the expected review of the rate cap likely to boost their interest income.

“Banks have sustained their optimism about Kenya’s economic prospects and improvement in the business environment,” says the CBK’s May 2018 MPC Market Perception survey.

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“They (banks) cited the improved political environment, expected pickup in economic activity driven by both government and private sector activities, the stable macro-economic fundamentals and prospects of interest rate cap review.”

However, the survey reveals that banks are concerned about the sluggish growth of private sector credit.

Private sector credit grew just 2.8 per cent in the year to April, from 2.1 per cent in the 12 months to February. This is below the central bank’s target rate of 12-15 per cent. The improvement in business is likely to slow down the rate of job losses in the banking sector after the lenders reacted to the rate cap by aggressively cutting costs to mitigate against prospects of lower profitability.

The total number of people working in the financial services sector dropped to 63,500 last year as most banks shifted from brick-and-mortar operations in favour of technology-based transactions, according to the Economic Survey 2018.

The government has promised the IMF a repeal of the interest rate capping law, leaving consumers under a cloud of uncertainty over the future cost of loans.

Treasury secretary Henry Rotich said recently that the government would review the caps in response to a sharp decline in credit growth, which is vital for the economy to grow.

The CS said that before the review is done however, the government will look to put in pace stronger consumer protection laws to prevent a return to the days of high interest rates charged by banks.

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