KCB banks on cheap deposits to grow revenue

Kenya Commercial Bank (KCB) customers being served at the counter

BY EMMANUEL WERE

Kenya: KCB plans to use its recently launched mobile banking platform to grow its customer deposits to Sh316 billion by the end of the year, according to its Chief Financial Officer Collins Otiwu.

The CFO said they hope to increase their deposits by 10 per cent from the year ended December 2012 when customer deposits stood at Sh288 billion.

This means that in the three months between October and December 2013, the bank has to look for Sh15 billion in deposits.

Ironically, the bank released the same amount of deposits — Sh15 billion — back to largely corporate customers because they were expensive, attracting about 12 to 15 per cent interest rates.

Sourcing for cheap deposits gives banks a competitive edge because they enjoy a good interest rate spread — the difference between the rate they lend at and what they pay a customer for his or her deposits.

Even as KCB reported a 15 per cent increase in net profits to Sh10.8 billion in the nine months to September 2013, compared to the same period last year, the growth in customer deposits lagged.

Customer deposits in the nine months to September 2013 grew by only 2 per cent to Sh301 billion, compared to a similar period a year ago.

Most of these deposits were wholesale deposits from their large corporate customers, who negotiated good rates for the bank to hold on to the money.

“The absolute numbers [of customer deposits] are not bad but, yes, it is not a stellar performance. We deliberately took a decision to retire very expensive deposits so we retired close to Sh15 billion of deposits this year,” said Otiwu. “If we take deposits at 15 per cent and our average lending is about 14.5 per cent, then we are not in business.”

MOBILE PLATFORM

KCB is betting on the M-Benki platform, which allows M-Pesa users to open a bank account without visiting a branch. M-Pesa is Safaricom’s mobile money transfer service. 

“Our M-Benki product is a channel of low-cost deposits. You can open your account with even a shilling and you can put in whatever amount you have. This thing is powerful; people do not understand how powerful it is. It is a game changer.”

M-Benki was launched mid last month and has KCB racing for cheap deposits with other commercial banks that have successfully used the mobile phone to grow their deposit accounts. 

CBA’s M-Shwari product, in partnership with Safaricom, which allows users to deposit and access micro-loans, grew the bank’s deposit accounts to more than five million by the end of September, up from the 34,884 accounts it had in 2011.

Equity Bank, whose focus is on low-income earners, has the largest number of customer accounts at over seven million, giving it access to low-cost deposits in the form of current and personal savings accounts.

The total deposit accounts in the banking sector stood at 21.12 million as at end of September, driven mostly by the growth in M-Shwari accounts.

Otiwu said, through M-Benki, they hope to have three million customer accounts by the end of this year, up from 2.4 million. By December 2014, KCB hopes to have five million accounts. 

KCB will be eyeing some of Safaricom’s 15.2 million active M-Pesa users as at March 2013.

“I am not saying we will get all of them [M-Pesa users], but imagine if we did,” said Otiwu.

“All we are telling customers is that by using M-Benki, you transfer the money that is sitting in a virtual account to your bank account. When you transfer your money into a bank account, then you can build a credit history, you can get a loan and so many other things.”

Account transactions

By growing its customer numbers, KCB is betting on increasing the commissions it earns from withdrawals from accounts and other transactions done on the mobile phone. This makes up a portion of its income known as non-funded income.

The target is to grow the non-funded income from 33 per cent of total income to 40 per cent by the end of 2014, according to Otiwu.

Having a large customer base will also help the bank sell insurance products to its customers, a service known as bankassurance.

Using a mobile banking platform is also expected to attract the younger generation, who are more interested in banking through mobile phones than visiting branches.

With the mobile platform and agency banking, KCB hopes to keep a lid on its costs.

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