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Kenya’s banking sector remains resilient despite digital disruption

Kenya has the highest number of bank branches and ATMs per capita in East Africa, despite being a pioneer in digital financial services, according to a new report by the International Monetary Fund (IMF). The report, based on the 2023 Financial Access Survey, shows that Kenya is more overbanked than its regional peers, such as Tanzania, Uganda and Rwanda.

Kenya leads in legacy banking infrastructure

The report reveals that for every 100,000 Kenyans, there were 6.85 ATMs and 4.39 bank branches in 2022. This is higher than the ratios in Tanzania (5.61 ATMs and 2.35 branches), Uganda (3.68 ATMs and 2.34 branches) and Rwanda (4.09 ATMs and 3.14 branches). The report also notes that Kenya has the highest number of licensed banks in the region, with 39 as of December 2022.

The high penetration of legacy banking infrastructure in Kenya is attributed to the opening of new branches by some commercial banks in emerging and new growth areas, according to the Central Bank of Kenya (CBK). The CBK also states that the number of bank branches increased to 1,475 in 2022 from 1,459 in 2021, with the largest increase recorded in Nairobi County.

Kenya leads in digital financial inclusion

Despite the dominance of legacy banking network, Kenya also leads its peers in digitisation of financial services, especially through mobile money platforms. The IMF report shows that Kenya has 2,176 registered mobile money accounts for every 1,000 adults, and 559.8 registered mobile money agents for every 1,000 square kilometers.

Kenya’s banking sector remains resilient despite digital disruption

Kenya is widely regarded as a global leader in mobile money innovation, thanks to the success of M-Pesa, which was launched in 2007 by Safaricom. M-Pesa has transformed the lives of millions of Kenyans by providing them with access to convenient, affordable and secure financial services. M-Pesa has also spawned other digital financial products and services, such as savings, credit, insurance and remittances.

Kenya faces challenges and opportunities in banking sector

The IMF report also highlights some of the challenges and opportunities that Kenya faces in its banking sector. One of the challenges is the high level of non-performing loans (NPLs), which stood at 14.2 percent as of December 2022, well above the regional average of 9.4 percent. The high NPLs are mainly due to the adverse effects of the Covid-19 pandemic on businesses and households.

Another challenge is the regulatory uncertainty surrounding digital lending platforms, which have proliferated in recent years. These platforms offer quick and easy access to credit, but also pose risks such as over-indebtedness, predatory lending practices and data privacy breaches. The CBK has proposed a bill to regulate these platforms and protect consumers from exploitation.

On the other hand, one of the opportunities that Kenya has is to leverage its digital financial ecosystem to enhance financial inclusion and stability. The IMF report suggests that Kenya can use its mobile money platforms to facilitate cross-border payments, promote savings and investment products, and support government revenue collection and social protection programs.

Another opportunity is to foster consolidation and efficiency in the banking sector through mergers and acquisitions (M&As). The CBK has been encouraging M&As to reduce the number of licensed banks and minimize risks for the industry. The latest deal involved the acquisition of Spire Bank by Equity Bank in September 2022.

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