The history of banking in Kenya
Banking in Kenya dates back to the country’s pre-colonial era when its pioneering banks concentrated on financing international trade along the Europe-South Africa–India axis.
Introduction
Kenya’s banking sector, which recorded Ksh 62.6 billion (approx $507 million) Profit before Tax (PBT) in the second quarter of 2022, has played a huge role in fostering job creation, entrepreneurship, and access to credit for Kenyans in rural areas.
Although a majority of financial transactions in Kenya take place outside banks, Kenya’s banking sector consists of commercial banks, microfinance banks, and non-banking financial institutions.
History of banking in Kenya
Banking in Kenya dates back to the country’s pre-colonial era when its pioneering banks concentrated on financing international trade along the Europe-South Africa–India axis.
The first recognised bank in Kenya was Jetha Lila Bankers, but the National Bank of India, which established its first Kenyan branch in 1896, is formally recognised as the first commercial bank in Kenya.
The expansion of bank networks in Kenya grew from one branch in the town of Mombasa in 1896 to 8 branches in 5 towns before the First World War. By 1948, there were banks in 10 towns in Kenya.
However, banking services were not available to a lot of Kenyans. The Post Office Savings, which was established in 1910 and was a department within the colonial postal service, was the first bank to provide banking services to Africans in Kenya. As time progressed, the banking sector in Kenya changed and indigenous banks were established.
The first fully locally owned commercial bank in Kenya is the Co-operative Bank of Kenya and it was established in 1968 as a cooperative society for farming communities.
The National Bank of Kenya was also established in 1968 and it is the first fully-owned government bank in Kenya. Since then, Kenya’s banking sector in Kenya has grown to have 38 commercial banks, over 1000 bank branches, and over 70,000 bank agents.
The Central Bank of Kenya
The Central Bank of Kenya (CBK) is the principal regulator of Kenyan banks. Kenya’s central bank was established by an Act of Parliament of March 24, 1966, and it started operations on September 14, 1966.
The main functions of the Central Bank of Kenya (CBK) are to:
- Formulate and implement monetary policies that promote price stability and foster liquidity and solvency
- Issue currency notes and coins
- Provide banking services to the government, commercial banks and other financial institutions.
Banking in Kenya is currently governed by the Companies Act, the Banking Act, the Central Bank of Kenya Act and guidelines issued by the Central Bank of Kenya (CBK). Before the establishment of Kenya’s central bank, the East African Currency Board (EACB) was in charge of issuing currency in the entire East African region.
The EACB also advised 3 countries-Kenya, Uganda and Tanganyika- to establish an East African Central Bank to provide banking services to commercial banks, moderate financial fluctuations, and function as an instrument of official monetary policy.
After Kenya’s independence in 1963, the EACB acted as Kenya’s central bank and provided credit to the government and lent to commercial banks. However, the EACB was not sufficient and it led to the establishment of the Central Bank of Kenya (CBK) in Kenya.
Bank mergers and acquisitions in Kenya
The Central Bank of Kenya has overseen and managed various bank mergers, acquisitions and collapses in Kenya. Between 1984 and 1989, which is generally referred to as the first bank collapse wave, 12 banks collapsed in Kenya.
The first bank collapses wave led to the government passing the Banking Act of 1989, which:
- Tightened the requirements for licensing new banks and non-banking financial institutions by increasing the minimum capital requirement
- Made deposit insurance compulsory
- Prohibited over-lending and earning interest on non-performing loans.
Despite these measures, a second wave of bank failures- which affected 19 banks- happened between 1993 and 1995. 5 more banks and non-banking financial institutions collapsed between 2000 and 2005.
There have also been over 20 mergers and acquisitions of banks in Kenya. One of the largest mergers happened after the first bank collapse wave between 1984 and 1989. The deposits and assets of nine of the collapsed banks were merged in December 1989 to form the Consolidated Bank of Kenya.
A recent bank acquisition in Kenya was the acquisition of an 83.4% stake in Sidian Bank in June 2022 by Access Bank PLC (Nigeria). You can view the complete list of bank mergers and acquisitions in Kenya here.
Types of banks in Kenya
Commercial and mortgage banks in Kenya are categorised based on their ownership and assets.
Banks classified by ownership depend on the type of entity that owns them i.e if they are locally or internationally owned. Kenya has over:
- 24 locally-owned commercial and mortgage banks
- 14 foreign-owned commercial and mortgage banks
- 6 commercial and mortgage banks with Government participation
- 10 commercial and mortgage banks listed on the Nairobi Securities Exchange (NSE).
More than 10 Kenyan banks also have subsidiaries in other East African countries and South Sudan.
Commercial banks in Kenya are also classified based on the estimated worth of their net assets, capital, reserves, customer deposits, number of loans and deposit accounts. This is known as tier categorisation and Kenyan commercial banks are classified as either Tier 1, Tier 2 or Tier 3.
Tier 1 banks are large banks whose assets are worth billions. They control a large percentage of the Kenyan banking sector and they are regarded as the top banks in Kenya.
Kenya currently has 7 Tier 1 banks. Their names are:
- Equity Bank
- NCBA Bank Kenya (formerly Commercial Bank of Africa)
- Absa Bank Kenya (formerly Barclays Bank Kenya)
- The Cooperative Bank of Kenya
- I&M Bank (Kenya)
- Standard Chartered Bank (Kenya)
- Kenya Commercial Bank (KCB)
The remaining 31 commercial banks in Kenya fall under the tier 2 and tier 3 categories. They are medium and small-sized banks, but most of them have experienced growth in the last few years.
As of 2022, there are 11 Tier 2 banks in Kenya. Their names are:
- Bank of Baroda (Kenya) Limited
- Bank of India
- Citibank N.A Kenya
- Diamond Trust Bank Kenya Limited
- Ecobank Kenya Limited
- Bank of Africa Kenya Limited
- Stanbic Bank Kenya Limited
- Prime Bank Limited
- National Bank of Kenya Limited
- Guaranty Trust Bank (Kenya) Ltd
- Family Bank Limited
As of 2022, there are 19 Tier 3 banks in Kenya. Their names are:
- Access Bank (Kenya) PLC
- African Banking Corporation Limited
- Consolidated Bank of Kenya Limited
- Credit Bank PLC
- Development Bank of Kenya Limited
- First Community Bank Limited
- Guardian Bank Limited
- Gulf African Bank Limited
- Habib Bank A.G Zurich
- Kingdom Bank Limited
- Middle East Bank (Kenya) Limited
- M-Oriental Bank Limited
- Paramount Bank Limited
- SBM Bank Kenya Limited
- Sidian Bank Limited
- Spire Bank Ltd
- UBA Kenya Bank Limited
- Victoria Commercial Bank Limited
- DIB Bank Kenya Limited
Conclusion
As of 2022, the ratio of available banks per 10 million stands at 7.1x. That means, there are about 7.1 banks for every 10 million Kenyans. Although Kenya has done a lot of work in providing financial services to the underbanked, it still has a lot of banks compared to its population size.
Sources
https://www.privacyshield.gov/article?id=Kenya-banking-systems
https://www.pwc.com/ke/en/industries/banking.html
https://bankinghistory.kba.co.ke/
https://mukenya.co.ke/list-of-commercial-banks-in-kenya-2022/