Banks, institutions where we place immense trust, often become the guardians of our hard-earned savings.
When appropriately regulated, banks can be beneficial; however, when unregulated, they can potentially become a source of great distress.
Let’s recall the infamous Chase Bank scandal. During this period, customers needing to withdraw their money encountered the most disappointing setback of the year.
This incident highlights the importance of maintaining a balanced and transparent banking system.
In this article, we will explore the significance of proper bank regulations and the consequences of lax oversight, all while contemplating the impact on customers and their financial security.
This is why the central bank of Kenya has come up with a list of Tier 1, Tier 2 and Tier 3 banks. Tier 1 is what you would wish to call ‘too big to fall’ banks in Kenya.
Currently, 42 banks in Kenya fall under the three categories mentioned above.
While classifying the banks, the central bank of Kenya evaluates their index of net assets, capital, reserves, customer deposits, number of loans and deposit accounts.
What are Tier 1 banks?
Tier 1 banks are considered to be safe by CBK and control almost 50% of the Kenyan banking sector market share.
According to the Central Bank of Kenya, Tier 1 banks have a weighted index of five percent and above, Tier banks have an index of between one and five percent, while Tier three banks have a weighted index of below 0 percent.
A lot has been happening in the banking sector in the past few years.
Perhaps the most notable one is the interest cap which saw interest rates on loans regulated to a manageable level.
The new no-nonsense Central Bank Governor forced Kenyans to think hard about where to stash their money.
The question of banking is rather severe; therefore, choosing where to bank your money should be an informed decision.
So far, three banks, namely Chase Bank, Imperial Bank, and Dubai Bank, are among the few that CBK has pointed out as having financial malpractices.
What seems like a vibrant bank could be a disaster in the waiting. The Chase Bank case will forever be a reference point where directors were loaning themselves over 1 billion shillings, risking the public’s finances.
List of tier 1 banks in Kenya
So with these latest developments, what is the best place to bank your money?
Tier 1 is made up of the big old banks. These will almost certainly never go under in a similar way as Chase or Imperial.
Tier 1 banks are relatively the safest. Here in Kenya, six banks comprise the top tier, collectively controlling 49.9% of the market. Sixteen other banks comprise Tier 2 and collectively control 41.7% of the market. The last tier, Tier 3, comprises 21 small banks that control 8.4% of the market.
They have millions of clients and hundreds of billions in assets. When you go to an M-Pesa Agent, they are probably agents on Equity Bank, Co-op Bank, KCB or Family Bank.
Why? Because a vast population has a bank account with one or multiple banks mentioned above. Imagine the situation in Kenyan homes if Equity Bank went under. With over 8 million customers, that would effectively translate into a revolution and possibly the end of the government.
