Employees in the Kenyan banking sector are becoming a major victim of the capping of interest rates regime, which took effect last September after a new law put a ceiling on bank charges.
The law capped bank loans interest rates at 4 percent above the Central Bank Rate, which currently stands at 10 percent. Before the law, some banks were charging as high as 28 percent.
The law was expected to cushion Kenyans from high interest rates and thus enable thousands of people to borrow affordably from commercial banks and thus boost economic growth.
However, it has led to banks shrinking loans to individuals and private businesses, and channeling the funds to government securities, which they consider risk-free.
The banks have also aggressively taken a majority of their services online and on mobile phones to cut costs, with deposit mobilization being channeled to agents as a majority of the financial institutions close branches.
The cost cutting measures have, therefore, led to massive jobs cuts, with close to 2,000 workers being send home in about a year.
Out of Kenya’s 42 banks, 11 have publicly announced they are laying off their staff or closing branches to remain afloat, with the latest being Barclays Bank of Kenya. Others are doing the exercise quietly.
Barclays Bank last week announced plans to close seven of its 102 branches in the East African nation in October as part of a restructuring process occasioned by the challenging operating environment.
While the bank said there would be no job cuts during the exercise as employees will be deployed to existing branches, Barclays Bank had recently announced plans to lay off 130 of its employees through a voluntary exit scheme.
Including the 130 workers, the bank has laid off close to 300 workers since the law to cap interest rates took effect. On the other hand, according to industry data, Equity Bank has sent home 400 workers in the past months.
Similarly, Standard Chartered Bank has in the last one year sacked some 300 workers, besides cutting operating hours for most of its branches in Nairobi as it pushes its customers to online and mobile banking.
Kenya Commercial Bank, on the other hand, has dismissed 223 workers during the period as NIC Bank and First Community Bank sack 32 and 106 employees respectively.
Analysts noted that while the banks are in their own right to sack workers as they embrace technology and seek to cut costs, they are using the capping of loan rates to accelerate the process.
“It was imminent that banks would sack workers as they take their services on mobile phone and online, but this would not have been as drastic as it is happening now. It would have been gradual, taking even five years but they have found the perfect excuse in the law for the sackings,” said Henry Wandera, an economics lecturer in Nairobi.
He further noted that the sackings going on in the industry are part of banks’ strategy to fight for the repeal of the law, which the International Monetary Fund (IMF) has said is not good for Kenya’s economic growth.
“Banks are fighting the law in many ways, which include shrinking lending to private businesses, lobbying parliamentarians and the president and the sackings. Unfortunately, employees are paying the ultimate price,” he said.