First came a bank from India

The history of banking in Kenya precedes the country’s independence in 1963.

The setting up of the British’s representative office through the Imperial British East Africa (IBEA) Company attracted the National Bank of India, which sought to be its banking agent.

The construction of the railway line from Mombasa to the hinterland in the early 1900s saw the growth of inland trading centres such as Nairobi and Kisumu, prompting the National Bank of India to set up a branch in Nairobi in 1904.

The Standard Bank of South Africa later opened two branches in Mombasa and Nairobi in 1911, with its counterpart, the National Bank of South Africa (NBSA), opening shop in the country in 1916. NBSA would in 1925 merge with the Colonial Bank and the Anglo-Egyptian Bank to form Barclays Bank DCO (Dominion, Colonial and Overseas).
More banks, including the General Bank of the Netherlands, Bank of Baroda, Habib Bank, Ottoman Bank and Commercial Bank opened offices in Kenya between 1951 and 1958.
In 1958, National Bank of India changed its name to National Overseas and Grindlays Bank. It was later called National and Grindlays Bank, following a merger.
Advent of locally-owned banks
The registration of Co-operative Bank of Kenya in June 1965 marked the advent of fully locally-owned banks. It would later be known as Co-op Bank when it began operations in 1968.
The Central Bank of Kenya (CBK) had been established in 1966.
Initially, the Co-op Bank exclusively served farmers through the co-operative movement, excluding individual customers. “Individuals were not allowed to hold accounts with the bank, and it lacked its own nationwide branch network, relying instead on the main commercial banks as its agents throughout the country.” This is according to a documentary by Kenya Bankers Association (KBA).
Fourth largest cooperative bank
Titled A History of Banking, the documentary’s narration continues: “This is a far cry from the bank’s position today, where it is ranked the fourth-largest cooperative bank in the world, after Rabobank in the Netherlands, Co-operative Bank in Britain and Credit Agricole in France.”
National Bank of Kenya (NBK), established in June 1968, became the first fully government-owned bank. Later, the government established the Kenya Commercial Bank (KCB) after acquiring a 60 per cent stake in the National and Grindlays Bank.
KCB quickly overtook Co-op Bank and NBK on the back of a wider branch network and substantial capital. Later in August 1971, KCB established a subsidiary, the Kenya Commercial Finance Company, before acquiring Savings and Loan (S&L) in 1972. These two subsidiaries enabled the bank to pursue business lines mortgage finance, which the Central Bank restricted.
“Other banks,” it is narrated in the KBA documentary, “would soon follow in KCB’s footsteps and set up subsidiaries to undertake those financial transactions that they were not permitted as commercial banks.”
In November 1976, the government took full control of KCB after acquiring the remaining 40 per cent in Grindlays Bank of London.
According to KBA, the formation of the government-owned banks had the effect of speeding up the provision of affordable banking services to the majority of the population. It also prompted foreign-owned banks to take measures to remain relevant in the Kenyan market.
Standard Bank of South Africa had in 1969 merged with the Chartered Bank of India, China and Australia to become Standard Chartered Bank, while Barclays relinquished the Dominion, Colonial and Overseas label to become Barclays Bank International, before being locally incorporated as Barclays Bank of Kenya (BBK) a decade later. Barclays would later become the first bank in the country to do an initial public offering by floating 30 per cent of its shares on the Nairobi Stock Exchange (now Nairobi Securities Exchange).
Seven new African-owned banks and 33 non-bank financial institutions came up to rival Co-op Bank, the only privately owned indigenous bank then in the 10 years after the death of president Jomo Kenyatta in 1978. But a number of them found the going tough due to liquidity troubles.
“The Central Bank, which at the time lacked adequate capacity to regulate in this highly politicised sector,” according to the KBA documentary, “was under intense pressure. Twelve banks collapsed between 1984 and 1989.” This made the government to pass the Banking Act 1989, which tightened requirements for the licensing of new financial institutions.
The development led to an increase in the minimum capital requirement, with deposit insurance made compulsory. Too much lending and earning interest on non-performing loans (NPLs) were prohibited.
More banks would go under between 1993 and 1995 despite the new stringent regulations. Another wave of falling banks in 1998 affected Bullion Bank, Fortune Finance, Trust Bank, City Finance Bank, Reliance Bank and Prudential Bank.
Still, some indigenous banks, especially those that targeted low income earners and workers in the Jua Kali sector (cottage industries), have become success stories. They include Equity and Family banks. The former has particularly attained phenomenal success, becoming the largest bank in the region by customer numbers.
Jamii Bora Bank has also established its niche as a provider of financial services to low income earners.
The market has further seen the entry of Islamic Banking, with two banks, namely, First Community Bank and Gulf African Bank, offering Sharia-compliant banking services.
The story of Kenyan banks now goes beyond Kenya’s borders, with KCB, Equity, NIC, Co-operative and I&M banks operating in regional markets.
As of July this year, the balance sheet of Kenya’s banking industry hit Sh2.5 trillion from Sh2.2 trillion.