Development and future of banking in Kenya

COMMERCIAL BANKING.

The origin of commercial banking in Kenya related to commercial connections in East Africa, which existed towards the end of the 19th Century. First of all there was National Bank of India in Kenya in 1896 after the establishment of the British in the region. It was followed by Standard Bank of South Africa in 1910. In 1916, the National Bank of South Africa merged with Anglo-Egyptian Bank Ltd to form Barclays Bank (dominion colonial).

The Standard Bank of South Africa and Barclays Bank were just branches of British banks based in London. Their establishment in Kenya was just in line with the practice of British banks to follow the development of trade in their colonies and concentrate on finance of international trade. National Bank of India operated mainly in India while the Standard Bank of South Africa had its main business in South Africa. Since the banks had links with Europe, South Africa and India their businesses affected their operations, because they were mainly dealing with customers from their respective areas. Open opportunities for traders and settlers who had come to Kenya and the growing community provided initial sources of deposits in excess; and the surplus, which remained unutilized in Kenya were invested in London. Deposits were also made locally. This situation prevailed mainly because there was a gap between bankers and prospective borrowers.

In the long run this bank was in the process of exporting capital from Kenya, a country which is under-developed, to a developed country. After half a century the Barclays Bank and Standard Bank had a monopoly in the system. But the developing economy with excellent opportunities for further expansion attracted an influx of new banks especially in urban areas.

The General Bank of Netherlands was set up in 1951. Bank of India and Bank of Baroda were established in 1953 while Habib Bank (overseas) Ltd was set up in 1956. The Ottoman Bank and the Commercial Bank of Africa were established in 1955. During the 1960s, the banking sector in Kenya experienced a new surge of energy change and in 1968, the Cooperative Bank of Kenya opened its doors. In 1968 again, the business of Ottoman was taken over by the National Bank of Kenya. In 1971 the National and Grindlays Bank, that operated as a retail commercial bank until 7th December 1971, was nationalized and formed Kenya Commercial Bank - the government owning 60% of the bank’s share capital. The Merchant Bank division was incorporated into a new bank, Grindlays Bank International Ltd, which has changed to Stanbic Bank. In 1971, Barclays Bank (DC) changed its name to Barclays Bank International Ltd and became a wholly owned subsidiary of Barclays Bank Ltd based in Britain. In 1974, the American Banks were established in Kenya i.e. first National Bank of Chicago and first National City Bank of New York.