Standard Chartered Group saw a four fold increase in interest earning deposit accounts with local lenders, powering the bank's 43 percent jump in net profit to Kes5.63 billion in the three months to March from Kes3.92 billion in the same period last year.

Income from deposits with other banks grew to Kes1.12 billion from Kes296 million reported in March 2022. StanChart reported increase in the deposits and balances due from local institutions which stood at Kes1.76 billion in March 2023 compared to Kes9.6 million during the first quarter 2022.

In Kenya, banks are having a challenge getting cash from other lenders due to a dysfunctional interbank market that has seen small lenders struggle to attract deposits thereby increasing the cost of banks lending to each other.

The interbank rate has gone up from about 5.21 percent in mid-January to 7.8 percent at the end of March when the bank closed its first quarter books. The rate has since risen to 9.62 percent in May according to latest CBK data.

As the cost of getting deposits increases, banks are also grappling with another challenge of customers moving their funds to perceived stable banks. CBK says Kenyans with over Kes100,000 in their bank accounts moved their money from small lenders to big banks over fears of bank runs. 

CBK reports also shows, micro lenders are grappling with liquidity challenges, suffering a loss of one billion shillings last year as depositors moved billions from their balance sheets.

Read also: Kenyan banking industry on edge as cash reserves decrease

Kenya’s 14 microfinance banks’ net loss jumped 77.5 percent to Kes1.3 billion as at December last year with customer deposits falling by eight percent to Kes46 billion in December 31, 2022 from Kes50.4 billion.

Smaller banks also face an additional threat from accumulated losses and higher level of loan defaults eating away banking capital that has seen the number of struggling lenders jump from nine to 13 last year, facing capital adequacy challenges on losses and discounted insider loans.

With limited options of where to get more funds, banks have turned to the regulator as the lender of last resort with CBK’s saying banks borrowed record Kes147 billion from the regulator, taking up about Kes40 billion over the last six months of 2022.

Big banks such as StanChart are also leveraging their huge deposit base to give other lenders a lifeline at a profit. StanChart’s customer deposits stood at Kes302 billion by end of March.

Stanchart profits also came from doubling its forex trading revenues to Kes2 billion in the first quarter. Banks continue to reap big from forex shortages that have spiked the exchange rate from 123.4 in January units against the dollar to 137.3 at close of business yesterday.

[email protected]