BY JOHN OYUKE
A major restructuring in the banking industry is in the offing to reduce heavy reliance by players on high interest rate spreads to prop up huge profits.
Treasury has hinted that it is coming up with regulations that will make players in the banking sector more competitive and to ensure their actions support the economy.
Commercial banks have been recording huge profit margins in a high interest rate regime, even though depositors have been left dry.
Speaking after KCB announced a pre-tax profit of Sh5.7billion for the first half of 2011, a 36 per cent increase over the same period in 2010, Group Chief Executive, Martin Oduor-Otieno, attributed the strong showing to growth in income from various business segments.
“We witnessed increased growth in lending in retail, mortgage and corporate segments,” Oduor-Otieno said.
“We were able to realise a 35 per cent growth in net loans and advances from Sh130 billion to Sh175 billion, while deposits grew by 12 per cent to reach Sh216 billion from Sh192 billion over the same period,” he said.
But even against this good performance that has been replicated across the sector, banks have been hesitant or slow to cut lending rates despite repeated signals from the Central Bank of Kenya (CBK) on the direction the rates ought to take in the market.
For instance, weeks after the Central Bank’s monetary policy committee cut its base-lending rate from 18 to 16.5 per cent, only a few small banks announced a reduction, though minimal.
Raft of measures
Because of what has been termed as corporate insensitivity, Treasury PS Joseph Kinyua has disclosed that Government will now be implementing a raft of measures to deal with these concerns.
He said reforms to be undertaken as part of the next medium term plan for Vision 2030, the country’s economic growth blueprint, would seek to address the structural factors that continue to inhibit the degree of competitiveness the government would like to see in the industry.