Equity gains S0bn in a month as small banks lose deposits

Equity Bank management says it has grown its deposit base by S0 billion in the last month riding on shift of deposits from small banks.
Small banks have suffered loss of deposits since last month after the sudden closure of Imperial Bank that shook the market confidence in the sensitive banking sector.

“We are big beneficiaries of flight to safety. During the recent (turmoil) we got an additional S0 billion,” said Equity Bank chief executive James Mwangi on the sidelines of a media briefing.

Central Bank of Kenya had last week confirmed that some of the small lenders had suffered runs forcing it to give them liquidity through what is commonly referred to as reverse repos.

READ: Moody’s sees tough times for small banks

Equity Bank deposits had dropped by Sh14 billion in the three months to September to Sh222 billion.
The indigenous lender is the only bank that has confirmed it benefited from customer flight from the small banks.

Banks are required to release financial reports every quarter making it difficult to trace how they have been affected by the collapse of the medium-sized Imperial Bank in mid-October.

Central Bank governor Patrick Njoroge said the run stopped early this month with banks that were recording loss of deposits recovering to report increase in customer deposits.

Deposit inflows

“I have been talking to chief executives on how the week ended and indication is that we have turned the corner with those who were recording deposit outflows now posting more inflows,” Dr Njoroge told the parliamentary Finance Committee last week.

A dubious list of banks likely to suffer a similar fate as Imperial Bank was circulated in social media, and picked by a section of the media, hurting most small lenders. CBK has said it contracted detectives from the cybercrime unit to trace the source of the list.

“When this news became public there was shock in the financial system and some depositors began moving their money from some banks but the biggest shock was a story that circulated in the social media — that was very damaging and malicious,” said Dr Njoroge.

There are 21 banks classified as small lenders by Central Bank. These banks usually have to pay a premium to attract deposits owing to fears of collapse and the Imperial Bank crisis just made matters worse.

As at end of last year the six banks classified as large in the country held more than 50 per cent of the country’s total savings.

Dr Njoroge also said he had urged the large banks to lend to their smaller rivals in order to redistribute the liquidity in Kenya’s banking sector.

Banks lend to one another through the interbank window and the horizontal repo market which was previously dubbed ineffective with the large lenders holding on to their deposits.

“The liquidity has been lopsided there was a lot of liquidity in four banks. What we have done is to encourage them to recycle the liquidity in the banking community — there have been a lot more horizontal repos.
“This is something that was not happening in the past but now is a standard practice,” said Dr Njoroge.