‘Standard Media's Business Beat’ sat down with Sidian Bank CEO Titus Karanja to discuss his institution’s decision to rebrand from K-Rep...
‘Standard Media's Business Beat’ sat down with Sidian Bank CEO Titus Karanja to discuss his institution’s decision to rebrand from K-Rep Bank, and the confidence crisis in the banking sector that followed the closure of three lenders between October 2015 and April this year.
Mid-tier commercial banks in Kenya have had to deal with customer distrust after three banks shut their doors in nine months. As a Tier III bank and being in the middle of a re-branding exercise, what was your take on the situation?
The ‘three-banks-in-under-nine-months’ story does not appreciate the fact that these banks had significantly different situations that made the regulator place them under receivership. Unfortunately, after Chase Bank’s closure in April, the notion created was that this was a pattern and the financial system is collapsing, which is not the case.
This is not the first time our financial system is facing these types of shockwaves — in the 1980s and1990s, we had a similar situation when many banks collapsed.
But between 2000 and 2010, we were lucky because we did not have major issues with the financial system, largely due to higher liquidity at the grassroots, with funds flowing in for initiatives like free primary education and the Constituency Development Fund.
With so much liquidity from the last decade, why are our savings still so low? We are lagging behind countries like Tanzania, Senegal and Ghana, all of which we were ahead of in 1980.
The problem is that the bulk of this liquidity went into consumption more than savings as Kenyans’ appetite for consumer credit shot up. We started seeing people buying new cars and high-end homes, and banks fed into this demand by lowering their conditions for credit.
Such periods of economic boom are often followed by significant collapses or downturns, and we are lucky in Kenya to have escaped this.
I think what we are seeing now is a bump in the road. The growth we are set to see in the following 10 years based on the investments we laid out between 2000 and 2010 is going to be huge.
You rebranded from K-Rep Bank to Sidian Bank in April. Why did you decide to make this move at this time?
We are looking to transition from a Tier III bank and get a larger portion of the consumer-banking segment. Today, we have 78 per cent of our business in consumer banking and 22 per cent in microenterprises.
By 2019, we want to have a portfolio that comprises 20 per cent consumer banking, 30 per cent microenterprises and 50 per cent small and medium-sized enterprises.
Despite the major change in strategy and competition from other lenders and savings and credit societies, modern banking models have made it easier for local, commercial banks like ours to grow.
How has technology changed the strategy game for the financial industry?
The price of real estate in Kenya has become so high that the return on investment, particularly in towns and urban centres, is not guaranteed, so nobody is looking at an expansion strategy exclusively in terms of brick and mortar.
Technology has, therefore, become both a necessity and a differentiating factor in the financial sector because consumers want to know they have a secure and functional ICT solution. This, however, has pushed up costs, and competition for cutting-edge systems is at its peak. Almost every fortnight there are new systems being developed, and as a financial institution, you need to be at the frontline of innovation.
What weaknesses do you see in our financial system?
There is a need to build the country’s deposits and savings culture to ensure more stability in the long run.
In a good financial system, savers finance borrowers, but the average Kenyan is a net borrower, and in a system with more borrowers than savers, what you end up having is a significant problem of competition for deposits. This is not just a problem for commercial banks, but for every stakeholder in the financial system.
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