Kenya beats Nigeria in banks’ efficiency

Kenyan banks are making more money from their customers compared with their much larger Nigerian counterparts thanks largely to technology, ratings agency Moody’s says in a new report.

Deployment of mobile channels to replace brick and mortar and hiring of third party agents have helped banks cut the number of branches from 1,518 in 2017 to 1,505 in 2018 according to Central Bank of Kenya latest industry data.

Last year the number of staff stood at 31,889 on increasing from 30,903 in 2017 but lower than the decade high of 36,923 in 2014.

“Kenyan banks’ cost-to-income ratios averaged 49 percent over the last four years, compared with 57 percent for Nigerian banks. This, together with lower provisioning requirements, supports the higher profitability of Kenyan banks,” Moody’s said.

Entry of Nigeria’s largest lender Access Bank into Kenyan will give it exposure to the market that has learned to manage costs and tap into huge retail base through the mobile phone according to the agency.

A number of Nigerian lenders including United Bank of Africa, Guarantee Trust Bank and lately Access Bank through purchase of Moi-linked Transnational, have a presence in Nairobi, which Moody’s analyst say has a superior cost-saving model compared to Lagos.

Moody’s also pointed out that Kenyan banks unshackled from the constraints of the rate cap are set to land a windfall that will boost earnings.

Removal of the rate cap has seen increased interest in the banking counters at the Nairobi Securities Exchange that saw them rally on expectation of future growth. Although the Kenyan lenders are releasing third quarter figures which are yet to be affected by the deregulation of interest rates, expectations going forward are positive.

“Kenyan banks will continue to benefit from their higher net interest margins because the recent removal of interest rate caps on their lending will increase their loan yields,” Moody’s said.