Kenya’s commercial banks have recorded an impressive 11.58% rise in pre-tax profits, total- ling $1.22bn for the first eight months of 2024, overcoming a challenging environment marked by ris- ing loan defaults and reduced borrowing demand.

Data from the Central Bank of Kenya (CBK) shows that profits have increased from $1.09bn during the same period last year, signalling the resilience of the banking sector.

According to CBK Governor Kamau Thugge, March was the best-performing month for the banks, with pre-tax prof- its reaching $184m. In contrast, August involved the lowest earnings of $119m, making it the only month since January with profits below $136m.

Despite this slight dip, the bank- ing sector has managed to stay on a growth trajectory, even as other sectors of the economy have faced significant disruptions.

Kenya experienced a tough year, with challenges such as heavy rains and floods between March and June, political unrest involving anti-government protests in June and July, and tight liquidity condi- tions. Despite these hurdles, banks have demonstrated strength, with the sector remaining a critical pillar of the economy.

Data from the Kenya National Bureau of Statistics shows that the finance and insurance sector grew by 7% in the first quarter of 2024, although this growth slowed to 5.1% in the second quarter.

The CBK projects the banking sector to grow by 6% for the full year – the slow- est growth since the 5.9% recorded in 2020, when the economy was hit by the Covid-19 pandemic.

The overall economic outlook, how- ever, appears more subdued. The CBK has lowered its forecast for national economic growth to 5.1%, down from the earlier projection of 5.4%. This adjustment fol- lows a slowdown in the second quarter, with growth decelerating to 4.6%, com- pared to 5.6% in the same period last year.

Kenyan banks have also been impact- ed by a decline in lending. By the end of August, the sector’s loan book stood at $27.2bn, down $1bn from $28.2bn at the close of 2023. This reflects not only reduced lending but also the deprecia- tion of dollar-denominated loans as the Kenyan shilling strengthened against the US dollar.

Private sector credit growth has slowed significantly, decelerating to just 1.3% in August – the slowest pace in more than five years. Meanwhile, the ratio of non- performing loans surged to 16.7%, the highest in 18 years. The rise in defaults and reduced borrowing have come during a period of high credit costs, with Kenya’s benchmark lending rate hitting a 12-year high of 13% in February 2024.

In response to these economic pres- sures, the CBK has taken steps to ease the burden on borrowers by implementing back-to-back cuts to the benchmark rate, bringing it down to 12%. This is aimed at stimulating borrowing and reviving economic activity.

“The Monetary Policy Committee noted the sharp deceleration in private sector credit and the slowdown in economic growth during the second quarter of 2024,” the CBK said in a statement. “It concluded that there was scope for further easing of monetary policy to boost eco- nomic activity while ensuring exchange rate stability.”

However, the sector’s performance will remain closely tied to broader economic trends, including efforts to manage in- flation, currency fluctuations, and global financial conditions.

Network International pledges robust security over PoS rollout 

Network International, a digital commerce enabler in Africa and the Middle East, has reaffirmed its commitment to ensur- ing robust cyber security measures as it introduces new payment solutions in Kenya.

“We are introducing our point- of-sale (POS) solutions as part of our strategy to enter the in-person pay- ments market in Kenya, a key hub for East Africa,” said its Regional Manag- ing Director for East and South Africa, Judy Waruiru.

As part of this rollout, Network Inter- national is offering the new POS solutions to merchants free of charge, allowing businesses of all sizes to accept payments conveniently, whether in-store or on the go. Customers will also have the flex- ibility to pay using either mobile wallets or cards, accommodating a wide range of payment preferences.

With an increasing number of digital transactions in the region, the company is addressing growing concerns over the security of payment systems while ex- panding its service portfolio.

“The risks in cyberspace have in- creased, especially Denial of Service, malicious codes, botnets and bugs which hamper operations. We secure our inter- nal systems when they interact with the external environment,” Head of Com- mercial at Network International Kenya, Paul Mutethia told African Banker. “Our transactions are encrypted and all our solutions are secure. We ensure there is no exposure to cyber attacks because we hold sensitive customer data.”

He disclosed that the firm has a dedi- cated department that deals with cyber- space monitoring and threat management. “If you don’t invest in cyber security, it would be better to shut down the busi- ness.”

The Central Bank of Kenya data shows that there are just over 55,000 POS ma- chines in the country – a figure that pales in comparison to the 7.4m regis- tered micro, small, and medium-sized enterprises (MSMEs), according to the Kenya National Bureau of Statistics. This highlights a significant gap in digital payment infrastructure for businesses across the nation.

Network International’s latest offer- ings include enhanced mobile payment gateways, contactless payment systems, and e-commerce solutions aimed at im- proving convenience while maintaining stringent security standards.

JPMorgan Chase to set up office in Nairobi

JPMorgan Chase, the world’s largest bank by market capitalisation, is ex- panding its presence in Africa, and plans are underway to open an office in Nai- robi, Kenya. The bank’s assets of $4.2trn and its operations in over 100 countries position it as the largest US lender.

The Central Bank of Kenya (CBK) grant- ed it an operating licence a few days before the bank’s CEO Jamie Dimon visited the country.

The move is part of the bank’s global expansion strategy and reflects its grow- ing interests in investing in the African market.

Africa, which has the youngest popula- tion in the world, has been identified by the bank as a key growth region thanks to its innovations in fintech and a growing number of institutional bankers.

Jamie Dimon, Chairman and CEO of JPMorgan, visited Kenya in October on an African tour which also included visits to Nigeria and South Africa. “We are opening our first branch in Kenya, which we are really happy to do,” Dimon said during an event in Nigeria.

“We want to add a country or two in Africa every couple of years or so,” Dimon stated. “And when you do it, you are ba- sically covering the government, maybe some big government enterprises and the multinationals that are going in there with traditional banking services.”

The bank has named former CBK ex- ecutive Sailepu Montet as its new Country Manager for Kenya. Montet brings over 20 years of expertise in banking, with a strong background in financial markets across both public and private sectors.

Dimon said the bank’s main inter- est lies in commercial and investment banking, treasury services, and possibly some lending in Kenya. However, it has no immediate plans to offer asset and wealth management services in the coun- try, which are already available in South Africa and Nigeria. “We are not doing as- set and wealth management now but that doesn’t mean it won’t happen in the next few years,” Dimon said.

Nairobi was chosen as the location for JPMorgan Chase’s office due to its emer- gence as a technology hub and its position as the point of entry to the larger East Af- rican market, making it an attractive hub for businesses looking to expand across the region.

Ten foreign banks have representa- tive offices in Nairobi, including Bank of China, Nigeria’s Access Bank, Bank of Kigali, South Africa’s First Rand Bank and Nedbank, Rabobank of Mauritius and French lender Société Générale. 

However, the bank faces the challenge of distinguishing its services in diverse markets like Kenya, where local and re- gional lenders hold a dominant presence. The country has 46 commercial banks serving a population of 55m.

Banks embrace WhatsApp banking

Kenyan banks are increasingly turning to WhatsApp banking to process pay- ments more efficiently and engage with customers more effectively. This model fosters conversational banking, stream-lining customer journeys and creating a more intuitive user experience.

Kenya’s Housing Finance Group, commonly referred to as HF Group, became the first major bank in the country to deploy WhatsApp banking in 2019. Robert Kibaara, CEO, said: “Cus- tomers can simply add HF’s Whats- App phone number to begin a secure banking chat session.”

Kenya’s largest bank by asset base, KCB Group, has also embraced Whats- App banking since 2019. By harness- ing popular messaging systems, KCB aims to elevate its communications as part of a broader strategy to provide personalised services.

In 2021, Absa Bank Kenya, a subsidi- ary of South Africa’s Absa Group, joined the trend by introducing a WhatsApp banking service named ‘Abby’.

At the time, while many customers in Kenya were thrilled by the new style of banking, cyber security concerns arose after a Mumbai doctor lost $2,000 from his WhatsApp wallet.

The bank’s head of digital channels, Andrew Mwithiga told African Banker: “We have put up stringent measures to make WhatsApp banking secure for everyone. We have several security layers on the platform.”

Equity Group, Kenya’s largest bank by customer base, launched its own Whats- App banking platform called the Equity Virtual Assistant in 2022.

I&M Bank, known for its open banking model, has also ventured into WhatsApp banking, initially offering customer ser- vice for non-transactional queries.

The world’s leading mobile money plat- form, M-Pesa, has embraced WhatsApp banking through its AI-based chatbot, Zuri, since 2020. Over 95% of Kenyan households use M-Pesa.

According to Statista, WhatsApp leads in usage in Kenya, with 86% of all internet users in the country using the messaging platform as of January 2024. As of 2023, there were 7.9m WhatsApp users in Kenya.

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