Restructuring in the Banking Sector Sees 1,732 Employees Laid Off as Branches Close

The inception of the Banking (Amendment) Act 2015 has had a tremendous effect on the banking sector with some experiencing slow growth as others laid off staff to mitigate the reduced interest income.

Banks recorded a slow 2.4 percent growth in loans and advances to 1.94 trillion shillings in H1’2018 from 1.90 trillion shillings in H1’2017.

This is in stark contrast to the 7.2 percent growth y/y to 1.8 trillion shillings in H1’2016 from 1.6 trillion shillings in H1’2015, before the law was enacted.

Reduced loan growth could be attributed to banks’ tightening their credit standards owing to the Banking (Amendment) Act 2015, coupled with industry-wide deteriorating asset qualities.

Laying off staff wasn’t the only cost rationalization measure some banks took to better position themselves in the industry. Apart from aligning their employee’s headcount to their operational needs, some banks also closed branches.

A total of 1,732 employees were laid off followed by a closure of 42 branches across the listed banks. Equity Group led the pack with a staff lay-off of 400 and after closing 7 of its branches. Barclays, on the other hand, laid off 301 employees and closed 7 branches.

According to Cytonn Report, Bank of Africa didn’t lay off any staff but led with the shutting down of 12 branches. Similarly, Ecobank closed 9 branches but no employees lost their jobs.

Restructuring in Standard Chartered, KCB Group, National Bank, HF Group, Sidian Bank, and First Community Bank sent home 300, 223, 150, 112, 108, and 106 employees respectively.

The image below shows the number of employees who were laid off and the number of bank branches closed.

Meanwhile, the operational efficiency has improved as shown by the Cost to Income Ratio (CIR), which improved to 55.7 percent in H1’2018 from 59.2 percent in H1’2017.

One other key avenue that banks have been using to improve their efficiency, is the product development centered on leveraging alternative distribution channels. The use of alternative channels has gained prominence among bank customers due to the convenience it provides. This has increased use of alternative channels has also contributed to increased non-funded income in the form of transactional income.

The change is attributed to the high number of transactions via these channels, which also contributed to the improvement in the cost to income ratio. That said, cost reduction must be accompanied by revenue expansion for banks to achieve sustainable growth.

Amidst the regulations, revenue diversification, asset quality, efficiency, consolidation, and prudence, other banks like the Co-operative Bank of Kenya didn’t make the list, which is a positive indication that the bank did not close off any branches or laid off staff for that matter.