Banks bypass agencies to open more branches, says CBK report

By James Anyanzwa

Commercial banks have stepped up efforts to open more branches.

The move is meant to tap into huge deposits and facilitate faster processing of loan applications according to the Central Bank of Kenya (CBK) Bank Supervision Annual Report 2012.

Latest data from the CBK shows that total branch network of the Kenyan banks have risen by 20 per cent to 209 branches in the last three years despite agency banking model being in force.

 “The total number of outlets grew to 1,272 in 2012, up from 1,063 in 2010,” says the report.  CBK projects more branches as the county governments undertake various measures to increase their economic activities.  The operationalisation of the Finance Act 2009, allowed banks to use third party agents to lower the costs and reach out to the unbanked.

They agents include petrol stations, supermarkets, shops, Saccos and small retail outlets.

More branches

Bank branches increased by 111 branches last year with Nairobi County accounting for the highest number of new branches in 2012.

 Nairobi County recorded a growth of 53 branches followed by Mombasa County with 10 branches and Kiambu County nine branches. However, branchless banking model, which was proposed in the budget for 2009 /2010 financial year, allows banks to extend their footprint through agencies with wide distribution networks.

The introduction of agent banking has enabled financial institutions to provide banking services in a cost effective way, which has benefited  customers.  It  has also enhanced financial access and inclusion, especially for the unbanked population.

It is argued agency banking is unlikely to undermine or destabilise the branch system. It may only  rationalise it, since agents typically do not replace existing branches.

They only extend their reach and agents require branches as hubs for cash handling services and banks require locations which can provide oversight for surrounding agents.

“Commercial Banks are expected to leverage on additional cost effective distribution channels to offer financial services. Many Kenyans have remained unbanked due to the limited outreach by deposit taking institutions,” adds the report.

CBK approval

The current regulatory regime for branching requires that banks obtain specific approval from the Banking Supervision Department for each branch opening or location change.

However while this requirement incurs costs for banks and supervisors and may cause delays, there is little evidence that this requirement impedes plans of Kenyan banks for branch expansion.

 While banks have been deploying traditional and new channels for business, the most rapidly growing network for financial transactions has been that of agents of M-Pesa, the mobile payment product offered by Safaricom. 

It is estimated that 32 per cent of Kenya’s bankable population remains totally outside the orbit of financial services and many more are being served by the informal financial system.

Policy makers reckon that agency banking is necessary to achieve levels of financial inclusion envisaged in Vision 2030 because the traditional banking infrastructure has high costs.