Firms forecast to cut more jobs as rate-caps persist

Kenyan firms are expected to lay-off more employees in the New Year, this as most of the companies remain focused on a cost consolidation path to weather the continuous tough operating environment.

The forecast downsize is expected to be led by players in the financial sector with the segment leading in the number of profit warnings since the enactment of caps on interest earnings at the back end of 2016 according to market analysis by the asset management firm ICEA Lion.

“The interest rate capping law has restricted the ability to grow the top line for banks. The non-banking sector growth has also remained in the single digits. The only way for firms to remain competitive is to become more efficient in their cost base which involves layoffs to an extent,” ICEA Lion Head of Research Judd Murigi said.

The Banking sector has for instance had its fare share of layoffs since the entry of holds to commercial lending with a total of 840 and 1620 jobs cuts across 2016 and 2017 respectively according to data compiled by Cytonn Investments.

The employee dismissals are aligned with lenders’ goal to bring down the cost to income ratios to include a number of other cost rationalization methods such as bank closures and voluntary retirement plans.

Banks have similarly adopted technology and have diversified to different revenue streams to incorporate non-interest funded income ventures such as bank assurance to stay afloat.

The ensuing difficult operating environment has seen a number of listed firms issue profit warnings for expected earnings at the close of 2018 to include lender Housing Finance and insurer Britam Holdings Limited.

Job cuts will mean a further deterioration of Kenya’s employment outlook which is currently characterized by high under and unemployment with the Kenya National Bureau of Statistics quoting the unemployment rate at 7.4 percent in its latest Integrated Household Budget Survey.

A lift of caps to interest earnings by commercial banks is viewed as the way out of the testing environment which has also been marked by a slowdown in private sector credit growth. The abolition of caps within the year could spark an uptick in consumer demand offsetting the continued layoffs according to Judd Murigi.

ICEA General Manager for Business Development and Client Relations Elizabeth Irungu expects the Central Bank of Kenya to lead the charge for the lift of caps by fostering the restructuring of the country’s credit scoring framework for a transparent credit environment, this largely seen as the deadlock to the retraction of caps by Parliament.

“Central Bank is very instrumental in the removal of caps and can seek help from partners externally to propagate the creation a robust credit-pricing mechanism,” she said.