Family Bank reports 48% drop in profit

Family Bank, a prominent financial institution, has recently reported a 48% decrease in net profit to $9.5 million for the first nine months of 2016. This significant drop in profit has been attributed to the escalating staff costs within the organization. In a similar vein, the Treasury has slashed its development budget for the ongoing financial year by over $2 billion, resulting in a reduced total development budget of $5.9 million. These financial adjustments have raised concerns about the economic landscape in Kenya, prompting discussions about the future of the banking sector and the challenges it faces.

Shiv Aurora, the head of private equity real estate at Cytonn Investments, shed light on the hurdles encountered by Kenyan banks during a recent interview with CNBC Africa. Aurora highlighted the need for innovation and adaptation in the banking industry, emphasizing the importance of finding a niche in the market to drive growth and competitiveness. He noted that while some banks, like Equity with Equitel and Alternative Banking Channels, have successfully leveraged innovative approaches, others, including Family Bank, have lagged behind in embracing alternative banking channels.

The conversation then turned towards Family Bank's strategy of retrenchment and branch expansion. Despite the bank's plans to open three additional branches, concerns were raised about the feasibility of this expansion in the wake of employee layoffs. Aurora explained that the key lies in optimizing cost-effectiveness through automation, agency banking, and mobile banking services. By shifting towards these alternative methods, banks can streamline operations and enhance efficiency, paving the way for sustainable growth.

Addressing the impact of the interest rate caps introduced by the banking act amendment bill, Aurora discussed the challenges faced by the private sector in accessing credit. The decline in private sector growth from 17% to 7% underscores the repercussions of the interest rate cap, which limits borrowing rates for individuals to 14%. Aurora also highlighted the disparity between lending to individuals at 14% and the government at 15.5%, raising questions about the allocation of funds in the current economic environment.

In conclusion, the evolving financial landscape in Kenya presents both opportunities and obstacles for banks operating in the region. To navigate these challenges successfully, financial institutions must prioritize innovation, consolidation, and the adoption of alternative banking channels to drive growth and competitiveness in a rapidly changing market.