NCBA Bank Kenya has outperformed its major competitors, including KCB Bank Kenya and Equity Bank Kenya, to hold the largest number of high-value accounts with deposits of over Sh100,000 at the end of December.
The latest banking supervisory report showed that NCBA’s high net worth accounts more than doubled to 416,481 during the review period, making it the country with the highest number of wealthy customers.
The bank had 146,396 such accounts a year ago. Equity, which previously led with 419,736 accounts, saw a significant decline in the number of high-net-worth clients, leaving it with 124,098 accounts in the review period when it was ranked second.
Kenya Cooperative Bank’s accounts also fell to 113,368 from 330,484, a move that saw it slide from second to third place. Similarly, Kenya Cooperative Bank’s high-value accounts fell to 86,033 from 280,128, taking the lender to fourth place from third place previously.
Most institutions reported big losses in high-value accounts, with NCBA bucking the trend and posting the biggest gain. Local banks lost a total of 736,845 of these accounts to 1,110,232, marking a 10-year low and one of the biggest contractions in a single year.
The decline in the number of high-net-worth accounts points to a combination of a shift to alternative assets such as Treasuries, as well as economic headwinds that have impacted a range of businesses and households.
The past year has been marked by high inflation and tax increases, eroding household purchasing power and hurting corporate profits across sectors, including manufacturing and services.
The large base of high-net-worth clients helps the bank fund its lending business, as well as opening up the opportunity to offer additional services, including wealth management.
Large accounts also generate significant revenues, including transaction fees and ledgers. While smaller accounts are less profitable per customer, their numbers have risen sharply in the past year, pushing total deposits to a new record of Sh5.9 trillion from Sh5 trillion previously, a move that has benefited larger commercial banks more.
The number of low-value accounts rose to 93.5 million from 62.1 million, with the increase attributed to mobile-linked accounts featuring partnerships between banks and Safaricom.
KCB Bank benefited greatly, increasing its small accounts to 37.6 million from 11 million in a move that made it the largest retail bank again. This saw it overtake NCBA Bank, which was ranked second, after its small accounts increased to 30.3 million from 29.3 million.
Low-value accounts are less profitable per customer, but large commercial banks can pool the fees earned to collect billions of shillings in revenue annually.
Large banks – which pay little or no interest on small accounts – can use the money held there to finance short-term lending businesses and earn lucrative interest income.
More banks have also been imposing minimum annual fees on individual accounts in the past few years, helping them grow revenue and cover the cost of maintaining accounts with little activity and balances ranging from zero to derelict.
The Sh900 billion growth in deposits last year amid a decline in high-value accounts points to growing income and wealth inequality.
The explosion in the number of small accounts is largely due to existing customers opening additional accounts at their current banks or different institutions to access new services.
A study by the Kenya Bankers Association found that more than half of bank customers maintained more than one bank account in 2023.
The percentage of customers who have two bank accounts reached 53%, while the percentage of owners of two to three bank accounts and four to five bank accounts reached 8.2% and 1.2% respectively, according to the survey.
Institutions, including government entities and private companies, hold the bulk of deposits. High net worth individuals also hold a significant portion of bank deposits.
Wealthy depositors get most of the interest that banks pay for holding their money for a set period of time ranging from one month to a year.
Most individuals keep small balances in their bank accounts, and routinely spend most of their income.