How Absa is coping with the loss of mobile transfer fees
For the past three years, banks have stopped earning money on transfers between accounts and mobile wallets.
In an interview with Business Daily, Absa Bank Kenya #symbol:ABSA Chief Executive Jeremy Awori discussed the risks associated with the Central Bank of Kenya (CBK) waiver and why banks would even be willing to lower fees in exchange for the reinstatement of fees.
SEVERAL BANKS ARE NOW DEMANDING A RETURN TO BANKING FEES ON MOBILE MONEY TRANSACTIONS. DO YOU ALSO SHARE THIS VIEW?
We really think they should now be reintroduced as they were introduced for a specific purpose which was meant to be temporary to ease the cost of banking for people and encourage the use of digital currency which has been the case .
We’ve seen the volume of transactions skyrocket, whether it’s M-Pesa, whether it’s bank to bank and I think that was a great initiative.
WHAT IF THE REGULATOR CHOOSES NOT TO RETURN THEM?
I think we are now at a time when we would all rather they came back. And I think we have to be dynamic over time because if they don’t come back, investments in new features in those channels won’t happen.
When you invest in a mobile platform, it is based on a return. It is not a free service. What is a little worrying is that if this goes on for a long time, we are going to see the innovation and the services coming out of the platform reduce.
When you come up with a business case and say you want to invest 500 million shillings and they say how much money you’re going to get and you actually say I can’t charge anything you’ll just go somewhere else where you can get better performance.
DO YOU PLAN TO REDUCE THE FEES IF RETURNED?
I think one, we would like to see them back, and then two. I think over time we will have to keep reviewing our fees, because obviously if volumes go up, there will be opportunities for fees to go down.
Using automated channels, we are also finding ways to pass on these benefits, just as we did with interest rates. As interest waned, we passed these benefits on to customers while maintaining our margins.
I think as an industry we have lost billions and billions of shillings but I guess we have to wait for the large scale integrated reports. I think you’ve seen the impact this has had on Safaricom and their numbers.
HOW MUCH MONEY HAVE YOU GIVEN UP SO FAR?
I think for all the banks, especially the top tier banks that have large sets of customers, it’s in the billions of shillings.
BUT WE DID NOT SEE A BIG IMPACT ON UNFUNDED INCOME. DOES THIS MEAN THAT THE BANKS HAVE FOUND A WAY TO SUPPLEMENT THIS INCOME?
I think we are always looking for new ways to generate income. So if you look at us, we identified specific businesses that we wanted, like asset management, which we’ve now formed a wholly owned subsidiary.
We have a few income products like mutual funds and investment solutions, whether institutional or retail.
We have a brokerage firm that does some of our investment banking transactions like EABL transactions. We are investing a lot more in payments because there are large volumes of payments.
Obtaining small fees, whether for the diaspora or payments between Kenyans who are here, will see these revenue lines increase.
And hopefully as the economy grows and people get more jobs, we will lend more and get the little arrangement fees that are in place in terms of risk fees. So we’re all looking for new ways to increase unfunded revenue.
ON THIS POINT, WHEN DO YOU THINK CBK WILL APPROVE YOUR RISK-BASED MODEL? WE HAVE SEEN EQUITY GET THEIR APPROVAL.
Each bank has its own discussions, there is an ongoing dialogue, so there are still some elements that we need to sort of iron out. But let’s see.
I am convinced that we can find a meeting of minds. I think the best way is to find a way to give banks risk-based returns that are worthwhile while providing customers with the most affordable rates.
The thing that must be before us is that today those who are excluded from the credit system are borrowing from the shylocks, people who are charging them 10 times what we charge per month.
WILL THIS UNLOCK CREDIT TO THE PRIVATE SECTOR BECAUSE MOST OF YOU ARE REPORTING ACCOUNTING PROFITS BY REDUCING PROVISIONS FOR LOAN LOSSES AND GOVERNMENT LOANS AND VERY LITTLE GOES TO THE PRIVATE SECTOR?
We need positive sentiment from private investors – people who come and tell us that I am investing in my business to grow. And when we invest in your business to grow it, you can buy machines, hire people, create new jobs, and then those people that we can hopefully lend to.
I also think another factor is whether we like it or not, the lack of competition between the private sector and the government. If you can’t assess private sector credit risk, you’ll just go to government securities and weigh, do I want a 10% treasury or an 11% mortgage?
With your T-Bill, you don’t have to chase anybody about defaults, you don’t have to go through property registration and all that.
For us, what we do is make sure we have a balanced set of investments. We wouldn’t just go into government securities, because that’s a higher yield, at the expense of customer loans. So we challenge ourselves to find clients we can lend to. Because if we don’t, we won’t have businesses. Everyone will lend to the government and we won’t have any customers or won’t be around in a few years.
BANKS ARE TAKING DOWN THEIR DEFAULTERS TOO AND WE HAVE SEEN BIG NAMES UNDER ADMINISTRATION. ARE YOU THAT AGGRESSIVE AND WHAT ARE SOME OF THE BIG NAMES IN YOUR NPL BOOKS?
We have generally imposed moratoriums of six months to a year. Some banks did a year, two years, three years. Under a moratorium, one is technically not in default, so you have to wait for the time to pass to come back and say “OK, the moratorium is over, so we have to start paying”.
Over 95% of our customers are back on track. We think it’s important that they get back on track, because if they go too long without paying, that money starts being spent elsewhere in the business.
In our case, we focus very clearly on the names we are looking at. I have to say I’m very proud as a bank we’ve been very good at identifying where we’re worried about credit performance.
We are not exposed to KQ #ticker:KQ , Nakumatt, Mumias #ticker:MSC , I can go down the list. And those are big numbers if they go to provisions they can wipe out 50% of your profits.
We are quite proactive with customers. We have these conversations very early on. If we’re starting to see indicators, we’re not waiting for you to be in intensive care. We don’t even want you to go to the hospital. We want to tell you, ‘you don’t seem 100%, let’s talk about it, let’s be honest’.
We don’t want to sell your factory or your house, or the property you have charged, it’s an expensive court case.