Banking amendment act signed by the president in 2016 have regulated applicable rates to banks loans and deposits thereby capping the interest that banks can charge on loans and deposits.This has led to the below underlined effects in the banking sector.The analysis is based on the report released by cytonn investments 

1. Increased consolidation through M&A activities: The Kenya banking sector has witnessed increased consolidation through acquisition activities, with local banks such as Diamond Trust Bank acquiring Habib Bank, and I&M Holdings’ acquisition of Giro Bank; while foreign banks namely M Bank’s acquisition of Oriental Commercial Bank, and SBM Holdings, which is set to acquire Fidelity Commercial Bank.

2. Staff lay-offs and closure of branches: With rising operating expenses in the sector, and the expected reduced margins owing to the enactment of the Banking (Amendment) Act 2015, banks resorted to laying off staff and closing branches, with close to 840 bank employees affected last year, and 21 branches closed.

3. Adoption of technology: Kenya Bankers Association (KBA) launched its real-time interbank switch, PesaLink, and kicked off a phased rollout of the digital payments platform. PesaLink will let customers make payments between banks in real-time without the need for intermediaries. Additionally, the customers using PesaLink can initiate transactions from diverse channels including from mobiles, banks’ branches, ATMs, agency banking outlets and through the internet.

4. Decline in private sector credit growth: Private sector credit growth has been on a decline for 16 consecutive months, coming in at 4.3% in December 2016 from a high of 21.0% in August 2015. The decline is attributed to structural reforms in the banking sector and strict adherence to prudential guidelines in terms of loan book quality and sufficient provisioning. This prompted banks to prefer to lend to the government as it is risk free as opposed to the private sector, which is considered riskier.

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