Banks open new branches in rural counties despite automation

Kenyan lenders opened new branches in rural counties last year in a bid to expand their branch network and boost their physical presence despite the increasing shift by customers from brick-and-mortar banking to fast and convenient digital banking.

Central Bank of Kenya data (CBK) shows that lenders opened three new branches in the rural counties of Isiolo and Trans Nzoia and two branches each in Embu, Kericho, Nyeri and Taita Taveta to increase their brand presence in those counties and cater to customers who still rely on traditional banking for transactions.

The choice of the new bank branches in these counties also appears strategic as most of them are agricultural-rich with major cash crops such as tea and coffee, meaning they have high cash circulation.

The banks also opened a branch in Baringo, Bungoma, Busia, Machakos and Nandi each even as the banking sector regulator noted that the presence of a physical branch network continues to denote a stable and reliable banking system despite the rapid growth of alternative banking channels.

However, the total number of bank branches decreased 2.86% from 1,502 in 2020, to 1,459 in 2021 with Nairobi registering the highest decline by 33 branches and Mombasa by nine branches.

Eleven counties recorded an increase of 19 bank branches while 14 counties registered a decrease of 62. In 22 counties, however, there was no change in bank branches.

“The decrease in bank branches is mainly attributed to the closure of branches by some commercial banks due to adoption of alternative delivery channels including agency banking, mobile phone banking, and internet banking,” said the CBK.

NCBA chief executive John Gachora told an investor’s briefing last year that physical outlets are still an important factor that customers consider when choosing a bank.

“The group intends to continue scaling up its branch network in 2022 by opening 12 new branches in Kenya and an additional two new branches in Rwanda, bringing our services closer to our customers,” said NCBA in its annual report.

The CBK noted the emergence of digital-only banks in the US, Europe, India, Nigeria and South Africa is disrupting traditional banking.

“Banks in Kenya are investing more in digitalizing and making their services more portable,” it said.

CBK noted the emergence of digital-only banks in jurisdictions such as the US, Europe, India, Nigeria and South Africa is disrupting traditional banking.

“Banks in Kenya are investing more in digitalizing and making their services more portable,” it said.

Some of the lenders that have embarked on an expansion drive include NCBA which plans to open 12 new branches this year.

To explain the move, lender NCBA said the new branches would help it mobilize deposits and attract new customers.

Banks have been digitizing their operations to boost efficiency and significantly cut the high operational expenses associated with running physical bank branches such as staff costs.

For instance, leading lender Equity Group this month said brick-and-mortar channels consisting of branches and automated teller machines (ATMs) handled only 2.9% of transactions during the first quarter of this year compared to the digital channels such as mobile, internet and third-party channels which handled 97.1% of all transactions.