The banking industry is back up again thriving and making
money, hand over fist, if the industry filings, which ended at the end of last
month, are anything to go by.
"Deposits were up, the loan books were bulging at the seams and bad loans as a percentage of total loans were down almost a third from 2017....
According to a report in the Business Vision on Thursday
customer deposits grew seven percent to sh19.5trillion from sh18trillion, loans
were up 10.3 percent to sh12.7trillion while non-performing loans were down by
32 percent.
If the bank is lending more to the public it helps the
economy grow as this credit is invested in setting up or expanding existing
operations and for consumption.
But the revelation of this year’s banking results has to be
the Kenyan based Commercial Bank of Africa (CBA). The small bank with its
headquarters in Nakasero has been outside the top ten banks in all measures,
but last year burst through with some prodigious numbers that has had industry
watchers seat up and take note.
Customer deposits were at sh134b were up 58 percent, more
than eight times the industry growth average, growth in the loan book was
almost double the industry’s growth rate and interest income jumped 36 percent
as a result.
And while the industry net profit fell back 19 percent to
sh751b from sh770b in 2017, for CBA profit made a quantum leap to sh567m in
2018 from a loss of sh1.3b the previous, a jaw dropping 143 percent jump. All
this they achieved out of two branches.
"This was the first profit the bank had shown since it reopened for business in Uganda in 2014. It sold out its earlier operations in 1969...
So what happened to this bank? Are these results sustainable
going into the future?
The public secret behind this numbers is MoKash, the mobile
money service that it runs with mobile phone company MTN that allows the bank
to receive deposits and lend money to the public over the mobile phone
platform.
The bank received a license from the central bank in 2016 to
provide the service and launched it to the public in October 2017.
With this single move they had access to the mobile phone
company’s more than five million mobile money accounts, multiplying their
account holders many times over. Currently MTN reports it has just under seven
million mobile money accounts.
The way the service works is that MTN’s mobile money users
can open a MoKash account and begin saving. A loan limit, how much the customer
can borrow is adjusted depending on the customers’ savings account activity and
later how his loan account behaves. Loans are dispensed within minutes of being
applied for.
The interest rate is steep – nine percent a month, but is
clearly not deterring borrowers from snapping up the opportunity.
Any banker worth his salt would see the veritable gold mine
the bank is seating on. For a fraction of the cost of opening branches all
around the country, they have roped in millions of accounts; for a fraction of
the cost of administering regular borrowing clients, they have signed up
thousands of new borrowers. The icing on the cake of course is that while
cutting their costs down to the bone they are charging them multiples of the
industry average – their lending rates comes to about 108 percent a year.
Or is the real icing on the cake that their bad loan
provision is under one percent of their loan book?
One can expect their lending rates to come down as the
competition enters the field and they perfect their business model.
But we shouldn’t be surprised. Across the border in Kenya
telecom company Safaricom through its own MPesa service has been trailblazing
these products not only in the region but are recognized world leaders in the
extension of such financial services through the mobile phone.
"Last year revenues from MPesa made Safaricom Kshs75b(Shs3trillion) or 31 percent of total revenues. Essentially that one in every three shillings for the telecom company is coming from the financial end of the company a trend that continues to grow – it grew 19 percent last year and can easily be at par with the voice and other messaging products within five years...
In Uganda mobile money is doing what the banks have
struggled to do for decades, there are currently more mobile money accounts –
about ten million all told, than all the accounts in the banking industry which
has about five million accounts.
What is most heartening is that mobile money has found a way
to reach, and continues to reach, those who don’t have accounts or even had
hope of getting a bank account, in a cost effective way that makes sense for
all concerned.
As if we didn’t see it coming already it also signals a
change of banking as we knew it.
When I first tried to get a bank account the high street
bank conditions were so onerous I didn’t bother. They required an opening
balance of sh300,000 and that I maintain a minimum balance of sh100,000. This
made sense at the time because of the low technology adoption and labour
intensive processes. This also why they used to open at 9 am in the opening and
be done with business by 1 pm.
Now thanks to technology we have those same services at our
finger tips and increasingly 24 hours a day, seven days a week – including
public holidays.
CBA has obviously got first mover advantage, a situation
that will not maintain for very long as other banks, taking a lead from CBA
find a way to worm their way into that space.
