Bank jobs on the line as COVID-19 wreaks havoc on industry

Bank jobs are now on the line as institutions in the industry trim costs to weather the economic impact resulting from the COVID-19 pandemic.

Similarly, banks are seeking to slim down on their branch network as a means to have leaner recurrent costs to operations.

Already two of the country’s biggest lenders in NCBA and Standard Chartered have declared redundancies attributing the expected job cuts to disruptions from the global health crisis.

“The COVID-19 pandemic, which is the most harrowing health and economic crisis of our lifetime, has affected the execution of our growth plans. We have had to defer our plans to scale our branch network and have taken unprecedented steps to support our customers in weathering this storm through loan moratoriums and fee waivers,” NCBA Group Managing Director John Gachora told staff in an October 30 memo as the lender roll out a voluntary exit program (VEP).

Earlier in the year, NCBA shut down 14 branches in what it termed as a consolidation exercise in the post merger of NIC and NCBA banks which birthed the lender.

Meanwhile, SBM told customers on November 12 that it would close five of its branches from December 12 as part of efforts to rationalize operations.

The closure of bank branches is expected to correspond with a trim on banking sector staff exacerbating the switch to digital transactions.

“This is a new era of doing business, banks are now looking to use more IT. A lot of transactions are moving from the branch as mobile channels pick up. We would expect this trend to continue atleast in the near term,” said Genghis Capital equities analyst Gerald Muriuki.

Banks have taken a hit from the pandemic as they register increased loan defaults from distressed customers forcing improved loan-loss provisions in line with approved accounting standards.

For instance, the ratio of the industry’s non-performing loans (NPLs) rose to 13.6 per cent, the highest rate in more than a decade from 13.1 per cent in June signalling increased asset quality deterioration.

Banks have responded to the increased rot by putting aside billions to cover the potential loss of credit.

The provisions have nevertheless meant lenders have sought to trim fat from their fixed costs to take down both jobs and branches.

According to Muriuki, smaller banks will take the biggest pain from these evolution given their lean capital balances.

“All banks are looking to streamline their operations and use technology to minimize fixed costs. Smaller banks will worry much more about their capital owing to rising provision costs,” he added.

Data from the 2018 Banking Supervision Annual Report indicated large banks had capital and reserves totalling to Ksh.470 billion.

This in comparison to a base of Ksh.60 billion for small banks which total 21 in number representing an average capital buffer of a mere Ksh.2.9 billion per lender in this category.

The trend in banking sector asset quality remains uncertain given the fluid COVID-19 situation in the country throwing the industry into further volatility.

“A lot depends on how the pandemic evolves. Further lockdown measures will have devastating effects on our businesses which means the probability of NPLs flattening becomes even more unlikely,” Kenya Bankers Association (KBA) CEO Habil Olaka said.

Banking transactions have swung the digital way since the start of the pandemic with only one in every 10 transactions now happening in a physical outlet according to the CBK.

“This is a significant movement towards digital transactions. We should take great advantage of the infrastructure available to grow transactions,” said CBK governor Patrick Njoroge in June.

At the end of 2018, there were 1505 bank branches around the country with the count having come down by 13 from 1518 in 2017.

The number of staff working in the industry had nevertheless increased by 3.2 per cent to 31889 during the year.