Banks rush to cope with booming economy

August 26, 2008

, NAIROBI, July 10 – The fruits of stable macro and micro economic activities in the country are at last being seen in the financial sector.

Over the last four years the country’s economy has recorded robust growth with the Gross Domestic Product (GDP) expanding from less than 2 percent in 2002 to 5.7 percent last year.

And if the recent developments in the banking sector are anything to go by, the country is poised for greater economic growth in the coming years in line with Vision 2030.

Since 2002, the country’s financial sector has seen tremendous growth with most banks that were threatened with total collapse recording a major comeback with huge earnings in pre-tax profits.

National Bank of Kenya (NBK) was one such institution that was faced with definite collapse due to colossal debts and government interference.

NBK is currently recording improved performance with last year’s result indicating that the bank may at last be able to start paying dividends to shareholders.

And on account of increased liquidity in the country, institutions such as Equity Bank, K-Rep and Family Bank have been able to climb a notch higher after being admitted into the bank class from building societies and financial service lenders over the last five years.

Robust macroeconomic activity can also be attributed to reopening of branches by major banks in areas once deemed non-profitable.

During the 1990s, most commercial banks wound up their operations in rural areas as returns from such branches failed to record substantial returns owing to the hard economic conditions that prevailed at the time.

Now these banks are re-opening those branches as well as expanding to other outlets in order to tap into the growing demand for financial services.

And to tame the sprouting of commercial banks, the then Finance Minister Amos Kimunya proposed amendments to the Banking Act to increase banks’ core capital from Sh250 million to Sh1 billion.

In his final budget before resignation, Kimunya said such a move would safeguard Kenyans from unstable financial service providers.

The move was well received by major players.

National Bank Managing Director Reuben Marambii said the amendment would ensure clients are protected against the collapse of their banks due to mismanagement.

He said NBK currently boasts of a core capital of Sh3.8 billion, which more than three times above the recommended level.

Other factors that could be attributed to stable macro economic activity in the country include the recent expansion of programs being undertaken by local commercial banks into the regional markets.

Over the last three years, Kenya Commercial Bank (KCB) has spread its wings into Southern Sudan, Tanzania and Uganda.

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