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Chase Bank Strategic Implications for Kenya’s Banking Sector

  Apr 27, 2016

There is panic in the banking sector, as others believe that the sector is in High Dependency Unit (HDU) that warranted Central Bank of Kenya (CBK) Governor to work even on a Sunday. The sector came under the microscope when Chase Bank Kenya Ltd, another mid-sized lender, was put into receivership for failing to meet its obligations and following a run on deposits, becoming the third bank in nine months to be placed under central bank control. The others in recent years have been Dubai bank and Imperial bank. The main argument of central bank on putting these institutions especially chase bank under receivership has been to protect the interest of the depositors, that is the banks creditors, not necessarily the other customer, the debtors. How can banks, the powerful corporates who have in the past had the luxury to pick and choose whom to take on board as their customer, both creditors and debtors now face such intense pressure?

In 2006, I had been registered in an MBA program after I got scholarship from a Mill Hill Missionary, Fr. Gerald Mooij and that means I had money enough to pay for a two year MBA program tuition fees and also accommodation. But since I had the money in cash, several banks couldn’t bank me since I was a risk as they required 3 months pay slip yet I was only a student. What happened, in two years later, the same banks that refused to open for me an account, put tents in universities and colleges asking students to open an account with them. This was one of those instances where the banks tried treating customers well. But after getting to their records, banks still lacked the level of customer service required to satisfy their customers.

This reminds us the familiar saying, “Customer is king”. Its talked about even more deeply in corporate circles and boardrooms but when it comes to formulating and executing strategies, the customer takes a back seat as soon as they have been attracted and brought on board. How often have you seen corporate spend a lot of money in advertising, marketing or creating awareness of their products as they mistreat and create dissonance among their existing customers, its uncounted. You only need to know that customer satisfaction level in the banking sector hardly surpass 60% while employee satisfactory is ever above 70%. I guess the board could be nearly 100%. So who really holds the power in the banking sector?

The economic assumption that financial power accrues to creditors, not debtors is no longer an assumption in Kenya’s banking sector. According to the CBK governor, if not the panic of the depositors, chase bank could have not gone down, at least that fast. This demonstrates that there must have been poor public relations during the crisis. In fact this matter was aggravated by the fact that the bank has a very efficient IT platform that enabled the bank’s customers transact on their Internet banking. This very platform that has differentiated the bank as one of the most efficient customer relationship oriented bank brought the bank down in a short period that couldn’t allow the directors and CBK to move the bank from ICU to HDU but directly to receivership. But what really brought the bank down, the power of the customers in the name of depositors profiled mainly as Internet if not technologically enabled creditors. With this has emerged a new power that has changed the banking sector forever, the power of creditors, customers. But, how will this power shape the route the banks must travel to succeed in the sector?

According to Darwin’s theory of natural selection, more individuals are produced each generation that can survive. Phenotypic variation exists among individuals and the variation is heritable. Those individuals with heritable traits better suited to the environment will survive and those not better suited will die. This is analogous to the banking sector. Those who will know that there exist new power that has tilted the power balance will have these phenotypic variations that takes care of the customer and install their creditors as kings hence save themselves the agony chase bank faced in Kenya’s banking sector as Kenyans stay alert asking, who is next we ought to run away from. The days when the banks felt above the law, untouchable, invulnerable and invincible are long gone, the power of creditors, customers is with us.

Article written by:

Dr. Fredrick Onyango Ogola ,
Senior Lecturer- Strategy and Competitiveness
Academic Director – MBA Programs Strathmore University
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