In the world of banking, big is still beautiful, but the efficiency brought by technology and its lean structure are attracting more takers in the money industry. Family Bank, one of Kenya’s most successful financial houses, is not only growing bigger in terms of branch network, but also incorporating alternative banking channels (ABCs) to supplement growth.
The bank, which reported a profit of Ksh1.4 billion for the nine months to September 30, 2016, plans to open seven more branches in the next few years to hit the 100 branch network target.
Even as it moves towards more physical branches, the bank’s management is making strategic changes to balance between ABCs and physical branches. “We are not taking the either or approach,” says Managing Director David Thuku. “We are combining both ABC and brick and mortar. Expansion is more controlled, with three branches planned for this year and four in the first quarter of 2017.”
Another key strategic shift by Family Bank has been in response to the prevailing macro-economic environment. This includes managing the drop in interest rates charged on loans occasioned by the new banking law that limits how much interest a loan can attract to just 4 points above the Central Bank Rate (CBR), now at 10%. This means banks cannot charge interest on loans above 14%, while the lowest interest on deposits stands at 70% of CBR.
This policy has hurt banks’ bottomlines, especially those whose main business is retail banking, forcing them to the drawing board to remain profitable.
At Family Bank, the management has been reviewing the cost structure and revenue sources, which has informed its strategic decision to cut the cost of doing business while increasing efficiency. “The physical branch has more expenses,” says Mr Thuku. “But the profile of customers will dictate whether we use alternative channels or physical branches.”
Overall, Family Bank’s fundamentals remain strong, operating way above Central Bank of Kenya statutory requirements on capital ratios and other financial adequacy thresholds.
The rise in interest expense during the nine months to September was more or less the drop in profitability. Spending more on interest helped counter the effects of the rates capping law – a move that has paid off by strengthening loyalty to the bank and grown customer base to over two million.
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After the collapse of Imperial Bank and Chase Bank, there was understandable panic in the banking industry targeted at tier two and three banks. Banks in this category have had to make financial sacrifices that have hit their earnings to maintain a positive sentiment.
As the MD announced results on Wednesday, he was bullish about growth, now that Family Bank has been cleared by authorities of any wrongdoing in National Youth Service scandal. “This was a subject of investigations a year ago and appropriate action was taken,” Mr Thuku said. “Our customers are people, and not just numbers, and they believe in us.”
