Kenya's banking sector expected to improve in 2018 after weathering difficult economic environment

Kenyas banking industry is expected to improve this year having weathered through a difficult economic environment in 2017 that saw the sectors performance limited.

Kenya Commercial Bank (KCB) CEO Joshua Oigara foresees a favorable general performance in the sector with an expected improvement in economic conditions and a pick-up in investments across the East African region.

Speaking on Tuesday in Nairobi during a banking sector forum, Mr Oigara said two things will define the financial services sector this year — a new regulatory environment and increased investments in the financial technology (Fintech) space.

“We are optimistic and looking forward to a more dynamic year in 2018 across East Africa as 2017 was a relatively tough year with a prolonged election period in Kenya but now we expect a leap in economic activity in the next 12 months,” Oigara said.

The global financial system has gotten into a new regime — the International Financial Reporting Standards 9 (IFRS9) — which took effect on January 1, 2018.

Under the IFRS 9, the most fundamental change is recognition of credit risk losses.

He acknowledged that 2017 was uncertain, changing and challenging with economic conditions deteriorating largely in Kenya and South Sudan from an East African perspective.

Interest rate cap

The full effect of the law capping interest rate in Kenya marked by a slow business environment on account of the general election negatively hit businesses and the economy at large.

The rate-cap, he added, subdued private investment owing to the drop in lending rates and as such, overall credit growth to the private sector reached its lowest levels in mid-2017.

Mr Oigara however acknowledged the government's willingness to re-look at the interest cap position saying that the sector remains optimistic that all actors would reconsider the caps in the best interest of customers.

Financial technology space

The CEO also stated that the industry needs to move deeper into the financial technology space as the future lies in leveraging technology to drive efficiencies in its operations so as to serve its customers better.

And with a looming disruption to banking, given the technological and market changes rolling the industry, Mr Oigara opined that each organisation needs to determine which developments to prepare for and how, based on its particular assets, profit pool, business model and operating model.

Oigara said KCB would continually manage their capital and risks to keep the business growing while delivering on targets.

The CEO said they were also focused on funding innovation which gives banks an opening to devise new forms of financing for long-term corporate projects, or new forms of financial structuring that benefit SME’s.