Central Bank of Kenya (CBK) building in Nairobi. FILE PHOTO | NMG Wealthy savers moved their cash from small banks in the three years that followed three mid-sized lenders being placed under receivership after failing to meet their obligations.
Central Bank of Kenya (CBK) data shows that small banks controlled 21.15 percent of the number of Kenyans with more than Sh100, 000 as savings last year, up from 34.73 percent in 2016 when three lenders were placed under receivership.
The top nine banks- classified by CBK as large—added 337,004 accounts with more than Sh100, 000 between January 2016 and December 2018.
In contrast, the small and medium-sized banks witnessed a drop in the number of quality savers by 176, 244 accounts or 36.5 percent to 305,688 last year.
Depositors and investors in Kenya were rattled three years ago when the CBK took control of three mid-sized lenders, Chase Bank, Imperial Bank and Dubai Bank, after the banks ran into financial trouble.
This triggered panic withdrawals from smaller banks and shift of cash to the larger lenders that were considered stable in what was dubbed "flight to quality".
"Depositors were searching for safety after the collapse of three banks in quick succession. The onset of rate cap also meant smaller banks could no longer offer higher returns on deposits so the only bargaining factor became safety," said Patrick Mumu, a research analyst with Genghis Capital.
Kenya on November 7 ditched an interest rate limit that was introduced in 2016 and which limited loan charges at four points above the central bank’s benchmark – currently nine percent – to curb high borrowing costs. The cap has since been blamed for choking business activity and economic growth.
Most bank loans in Kenya came with the maximum 13 percent rate, but before 2016 they oscillated anywhere up to 27 percent, denying the smaller banks room to offer attractive deposit rates that made them attractive to big savers.
"Customers realised that no return was worth the risk of putting money in an unstable bank. Some confidence is building up now but 2017 was particularly bad as media continued to break stories of individuals and firms whose money was stuck in under-receivership banks," said the CEO of a small bank who sought anonymity.
In the three years to 2018, KCB , Equity, Co-operative Bank, Standard Chartered Bank, Barclays Bank of Kenya, Diamond Trust Bank, Commercial Bank of Africa Limited, Stanbic Bank Kenya and I&M Bank […]