Banking in Sub-Saharan Africa; Case-Study: Kenyan
The Kenyan banking sector currently consists of 43 commercial banks, one mortgage finance company, nine microfinance banks, seven representative offices of foreign banks, 94 foreign exchange bureaus, seven money remittance providers and two credit reference bureaus. Of the total commercial banks, 13 of them have over 50% foreign ownership. At the end of 2014 Q3, the number of bank customer deposit and loan accounts stood at 26,603,385 and 4,068,304, respectively.
The Kenyan banking sector continues to show strong growth. According to Central Bank of Kenya (CBK) data, total assets in the banking sector increased by 3.7% between the end of June and the end of September 2014, reaching KSh3.08trn. The largest item on the overall banking sector’s balance sheet was loans and advances, accounting for 59.9% of total assets. The sub-sector also recorded strong growth over the period, reaching KSh1.91trn at the end of September, reflecting a 7.2% q-o-q expansion. In Q3 2014, 10 out of 11 sub-sectors recorded growth with regard to loans and advances, with tourism, restaurants & hotels the only sector recording a contraction. Personal/household loans and advances was the largest sub-sector, reaching KSh483.3bn, followed by trade (KSh377.7bn) and real estate (KSh280.8bn).
Furthermore, deposits remain banks’ main source of funding, accounting for 73.1% of total liabilities as at September 2014. The size of total deposits reached KSh2.25trn by the end of September 2014, up from KSh2.15trn at the end of June. The increased use of alternative delivery channels of banking services such as agency banking also contributed to increased deposits. Banking sector capital also increased over the period, growing by 4.9% q-o-q to reach KSh458.1bn by the end of September. In turn, the ratios of core and total capital to total risk-weighted assets increased from 15% and 17.5% to 15.1% and 17.8%, respectively. This reflects stronger growth in the capital base compared to that of risk-weighted assets. Furthermore, looking at asset quality, the stock of gross NPLs increased by 2% from KSh101.7bn in June 2014 to KSh103.7bn by the end of September.
Nevertheless, the proportion of net NPLs to gross loans improved from 2.1% to 1.9% over the same period, while the ratio of gross NPLs to gross loans declined from 5.7% to 5.4%. Six out of 11 sectors registered increases in NPLs in Q3 2014, most notably the personal/household sector (+10.9% q-o-q to reach KSh26.5bn) and transport & communication (+20.3% to reach KSh8.9bn). According to the CBK, the general increase in NPLs is due to the spill-over effects of high lending interest rates and challenges in the domestic business environment. However, the CBK notes that banks have adopted enhanced appraisal standards to mitigate credit risk.
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