Kenyan lenders are betting on cross-selling of banking products, growing alternative delivery channels and increasing lending to SMEs to grow profits this year, amid increased competition in the sector.

Presenting their 2013 annual results to shareholders, CEOs of different banks said they will leverage on prior investments in information technology systems and their branch networks to drive new products and support growth in a market that is increasingly becoming competitive as both banks and other lenders like Saccos and microfinance institutions fight for the market share.

With financial penetration in Kenya now well above 70 per cent, banks see innovation and increasing product usage among their customers as key to driving earnings.

For example, out of Co-operative Bank’s 4.1 million customers, about 76 per cent operate more than one account, reflecting the opportunities available for the company to push more products.

“We want to grow our income from alternative banking channels… as well as those from off-balance sheet items (like letter of credit) and also our forex earnings,” said Gideon Muriuki, the bank’s CEO.

Particularly, banks are targeting SMEs to offer cross-selling opportunities given the growing business offered by this segment.

The World Bank estimates that Kenyan SMEs have grown by over 1,700 per cent since 2006.

“We want to tap into this segment… we think this will offer us an opportunity to grow our other businesses such as forex,” Peter Munyiri, the Family Bank CEO told investors last week.

Cross-selling is becoming a key revenue driver for banks. For example, Equity’s bancassurance business generated a profit before tax of Ksh407 million ($4.67 million) — 2.2 per cent of total profits — in 2013 up from Ksh17 million (0.17 million), or 0.3 per cent of total earnings, in 2009.

Alternative channels like agency and electronic banking have emerged as key drivers of growth, with the Co-operative Bank saying that 30 per cent of its transactions are through these platforms.

Equity also says that one in every translation by customers is now done through agency banking, with the platform now handling more transactions than all its branches.

“The growth in agency banking has helped lessen the crowds in banking halls and thus increased our customer experience at the branches,” said James Mwangi, the CEO of Equity Bank.

But most importantly the increased usage of agency banking has increased the coverage of banks as well as lowered their costs as they don’t make investments in infrastructure like premises and computers, with entrepreneurs providing this costs

Leveraging on IT is seen as a core part of the business, with KCB, for example, saying it will launch more technology-driven products this year with an eye at growing customer deposits. Last year, the bank rolled out M-Benki, a product that allows customers to open accounts and transact via their phones.

“Since the launch, customer numbers have increased to nearly three million and the projection or the year end is five million…” said Joshua Oigara, KCB’s chief executive.

Banks will be counting on these innovations to help them post even better results this year.

CfC’s profits rose the most among Kenya’s top 10 banks by profits, growing by 70 per cent to Ksh5.1 billion ($58.62 million) in the year to December 2013, compared with Ksh3 billion ($34.48 million) in the same period a year earlier.

KCB on the other hand maintained its title as Kenya’s, and the region’s, most profitable bank, with net earnings growing 17 per cent to Ksh14.3 billion ($164.7 million) in 2013, compared with Ksh12.2 billion ($140 million) in 2012.

Equity Bank’s earnings rose 10 per cent from Ksh12 billion ($138.2 million) to Ksh13.2 billion ($152 million), while Co-op Bank announced an 18.2 per cent jump in the 2013 after-tax profit to Ksh9.1 billion ($104 million) compared with Ksh7.2 billion ($82.9 million) the previous year.

Standard Chartered Bank has reported a 14.7 per cent increase in net profit to Ksh9.26 billion ($106 million), compared with Ksh8.07 billion  ($92.75 million) in 2012.

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Barclays was the only bank among the top 10 that reported a decline in net earnings, raking in Ksh7.62 billion ($87.5 million) last year compared with Ksh8.74 billion ($100.4 million) in 2012.

Overall, the banking industry in Kenya recorded a 16.8 per cent growth in net earnings.

Analysts say Barclays has over the past few years lagged behind its key competitors in terms of growing its loan book and adopting new strategies like agency banking.

“We, however, see a reversal of this trend as the bank shifts from its conservative strategy and is keen to diversify its revenue streams mainly through lending to SMEs,” said Halima Saadia, a research analyst at Old Mutual securities.