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The banking industry is a key section in any economy and as prime movers of economic life; banks occupy a significant place in every nation. The banking sector in Kenya operates in a relatively deregulated environment. The dominance of foreign owned banks still account for substantial part of the banking system. Kenya’s banking industry has continued to play a larger role in the country’s economy than Tanzania and Uganda.

Current Structure and Developments in the Kenyan Banking Industry       

The banking sector comprises of 45 institutions, 41 of which are commercial banks, 3 mortgage finance companies, one non-bank financial institutions and one building society as at December 2006, according to CBK annual reports. However, Gulf African banks Ltd commenced banking business in November 2007 which increased them to 46 institutions by December 2007.Out of the 45 institutions, 34 were locally owned. The foreign Banks comprised of 6 locally incorporated and 5 branches of foreign incorporate institutions.

As depicted from the CBK reports, local banks dominates the Kenyan banking sector in terms of numbers, but only account for 48.2% of the sector’s total assets, closely followed by the foreign owned banks with 43% of the sectors assets.The Kenyan banking sector has continued to record impressive growth in the last few years. For example is the period ended December 2007, the overall profitability rose by 30 percent while the asset portfolio expanded by 26.1 percent over the previous year. The banking sector performance indicators improved with a decline in the stock of non-performing loans and enhancement of capital adequacy ratios attributed mainly to fresh capital injections and retention of profits over the period.

The banking sector’s total assets expanded by 26.1 percent or Ksh 198.7 billion from Ksh.  790.8 billions as at December 2006 to Ksh 959.5 billion as at December 2007. Growth of the asset portfolios was founded mainly by the increased deposits, injections of capital and retention of profits. Total loans and advances, net of provisions, comprised 52 percent of total assets and stood at Ksh. 498.0 billion in December 2007 compared with Ksh 396.0 billion in December 2006. Local currency loan and advances expanded by 26.3 percent from Ksh 337.6 billion to Ksh. 418.7 billion in December 200 7 while foreign currency loans and advances increased by 23.1 percent from Ksh 644 billions to Ksh 79.3 billion in December 2007.

The Kenyan banking industry has been expanding branch networking amid the introduction of branchless banking system, which include the use of EFTs, ATM cards, SMS banking etc. The annual reports of CBK clearly indicate that, branch network has been slowly expanding. since 2002. By the end of December 2006, Kenya had a total branch network of 575, as compared to 486 branches in the period ended December 2002.Further it is indicated that Nairobi province has a large number of branch network while North Eastern province has never added any branch since the year 2000. It has maintained 4 branches in the whole province. This indicates that many Kenyan are left un-banked throughout the country’s eight provinces, as banks have customer bases concentrating in major cities. Also, the slow growth of Branches can be attributed to the rapid rise of alternatives, which include electronic financial product through mobile phones and Personal computers.

Kenyan banks have exponentially embraced the use of information and communication technologies in their service provision. They have invested huge amounts of money in implementing the self and virtual banking services with the objective of improving the quality of customer service. Some of the ICT-based products and services include the introduction of SMS banking, ATMs, Anywhere banking software’s, Core banking solution, Electronic clearing systems and direct debit among others. In mid 2005, Kenya’s banking Industry moved a milestone by introducing Real Time Gross and Settlement system (RTGS) which was renamed Kenya Electronic Payment and Settlement system (KEPSS). This will facilitate the inter-bank Financial data transfer. The development of e-banking services is expected to decongest banking halls and reduce the incidences of long queues in banking halls. Digital– based financial services have made a significant contribution in covering the cost of offering financial services.

The banking industry has also over years continued to introduce a wide range of new products, prompted by increased competition, embracing ICT and enhanced customer needs. As a marketing strategy, the new products offered in this segment of market, continue to assume local development brand names to suit the domestic environment and targeting the larger segment of local customer base. Among the products, include Islamic banking which was introduced in 2005, tailored in line with “Shariah” principles. Currently, Barclays Bank of Kenya, Kenya commercial Bank, K-Rep-Bank and Dubai Bank have so far introduced Islamic banking products in the market.  All the above clearly indicate that, Kenya’s banking Industry has great developments like any other banking market in the world

E-banking Revolution in the Kenyan banking industry                       

As the banking fraternity continues to make forays into the retail segment of the market, it is becoming more paramount that customers be given value for their hard-earned deposits. The new banking environment is about differentiating banking products, increased choices, security and accessibility. The ability of financial Institution to deliver products and services in the most efficient and effective manner, will therefore be the key to performance and relevance.

In Kenya, majority of banks have introduced internet banking, mobile banking and other e-banking facilities, to enhance delivery channels to their customers. It is however, important that the introduction of these products be accompanied with programs to broaden consumer horizon by enhancing their knowledge in the new and more innovative way of conducting banking business. For example, while Internet banking is fast and convenient mode of conducting banking transactions, this is yet to gain acceptance among banking consumers, due to fears of apprehension in this mode of banking. Like many other developing countries, e-banking in Kenya is at its nascent stages. Not many banks have embraced e-banking but majority have at least one or two technology based delivery channels. The non adoption of e-banking by banks has been attributed to impaired non-availability of infrastructure and legislation to support e-banking.

The major indicator of e-banking is ATM banking. According to the survey conducted by financial sector deepening Kenya in association with Central Bank of Kenya, it was indicated that Kenya had a total number of 968 by the end of December 2007. Further, indication was that, an increase of 31.3 percent from 2006 was experienced, when the industry had 737 ATMs. A part from individual bank ATMs, Kenyan Banks who are members of two organizations, which provide e-banking outsourcing partnership, will access to 272 ATMs. The two organizations include, Pesapoint limited and Kenya switch (Kenswitch). Customers of Banks which are members of Pesapoint can access 120 Pesapoint ATMs and those banks which are members of Kenya switch can access 152 ATMs of Ken switch banks plus Pesapoint’s giving access to a minimum of 272 ATMs.

Among the innovative banks is Kenya is Equity Bank which had more ATMs (232) as at December 2007.Research reveals that, only 22 out 41 banks have their own ATMs.  Kenya commercial bank and Barclays banks have second and 3^rd rank with 19.92 and 14.7% of total ATMs in Kenya. All information and communication technology developments are attributed to the realization of the advantages of technology integration in the banking industry