Banking sector has plenty of room for growth


It is five times easier to access a banking facility in Kenya than in Uganda finds a Nation Newsplex review of banking data following Central Bank freeze on licensing of new commercial banks.

A look at data for Kenya, Uganda, Nigeria and Ghana reveals that Kenya has 32 bank branches per million people. Ghana with 38 banks per million people recorded the highest number. It was followed by Kenya, Nigeria with nine and Uganda with six.

Nigeria has the highest number of bank branches (1,663) compared to the four countries but due to its large population, it is way below the four country’s average of 21 branches for a million people. It is followed by Kenya with 1,443 branches, Ghana with 1003 and Uganda with 250.

Accessibility to a banking institution seems to be much better for Kenya and Ghana citizens than their African peers.

According to the World Bank Global Findex database, in Kenya 55 per cent of people aged 15 and above have a bank account.

Lately there have been claims that Kenya is overbanked. “Based on the number of players in the market, there is a strong argument to be made that Kenya is overbanked,” said Mr Patrick Mweheire, formerly the Chief Executive Officer of Renaissance Capital, East Africa.

To state that a country is overbanked suggests that the banking sector in a country controls a disproportionate share of the resources in the country.

Many economists in the US and Europe consider an overbanked country as a risk for economic instability. Some of these economists have attributed the global financial crisis of 2008 to high growth of banks and the financial sector.

It is believed that overbanking may lead individual banks into more risky behaviour as they try to fight for profit and market share and this may lead to distress throughout the economy should some of these banks fail.

But Kenya does not face this risk now because most Kenyan banks are profitable and the national savings rate is still comparatively low meaning there is opportunity to extend basic savings services to the population.

Based on the low savings rate, low number of mortgages and financial products, the risks that come from overbanking are less salient in Kenya.

But in Kenya the debate has centred on the number of banks registered to operate.

Bank distribution

To ascertain if the claim is true or not, the Institute of Economic Affairs (IEA) looked at the number of bank branches and their distribution throughout the country.

Nairobi has 40 per cent of all the bank branches followed by Mombasa with nine per cent and Kiambu with five per cent. Kajiado Kisumu and Meru with three per cent each round off the top five. This is because banks are capital intensive so they need population density to set up. The urban areas also have a lot of economic activities so banks tend to set up more branches in such areas.

Data from 2014 indicates that Kenya has 42 banks with 1,443 branches. Nairobi has 40 times as many bank branches as 35 of the 47 counties and four times as much as Mombasa which is in second place. This confirms the great advantage that Nairobi has to attract bank branches compared to other counties.

The 20 counties with the lowest access to banks jointly have 120 branches, representing 8.3 per cent of all bank branches in 2014.

These numbers range from 11 branches in Migori County to two branches each for Mandera and Samburu counties. The lowest number of bank branches are in Mandera, Samburu, West Pokot, Tharaka Nithi and Tana River. Most of these areas have low urbanisation rates and low population density so banks rarely set up in these areas.

Nairobi, Mombasa, Lamu, Kajiado and Uasin Gishu counties have the least number of people being served by a bank branch, which means they have the highest access to banking services. The top 15 range from 6,215 people per bank branch in Nairobi to 39,162 per branch in Kirinyaga County.

The most number of people being served by one bank are in the counties of Mandera, Turkana, Marsabit, Siaya and Tharaka Nithi. The access disparity is demonstrated by the fact that Mandera has seven times as many people served by a branch as the national average of 81,177. Most of these areas are much further away from urban areas hence do not attract many bank branches.


The inequality among counties affirms that Kenya is not overbanked. For instance, the urban areas of Kenya such as Nairobi and Mombasa account for half of all bank branches while Samburu and Mandera have only two branches each.

The analysis also compared the number of account holders being served by a bank branch among the four countries in Sub-Saharan Africa in the year 2013.

Nigeria has the most number of account holders being served by one bank branch at 71,063, Uganda has the second highest number at 29,118 followed by Kenya at 15,163. Ghana had the lowest number of account holders per bank branch.

Compared to the average for these four countries, Ghana and Kenya are well below the average while the average number of account holders served by a branch in Nigeria is more than twice that of the average.

This suggests that Nigerian banks have a thinner spread of branches and have more people served per branch than is the case in Ghana, Kenya and Uganda.

We could therefore say that Kenya, like Ghana has far higher banking spread compared to Uganda and Nigeria.

Kenya seems to have a high number of banks and a good density of branches and holds well compared to the region.

But due to the fact that the African continent is home to countries with low levels of bank penetration, a global ranking will probably show that Kenya is not overbanked.

In its advert placed in the newspaper on Wednesday the Central Bank said the moratorium did not apply to cases relating to resolution amalgamation and acquisition of banks. The notice did not give a reason for the moratorium.