Imperial Bank that is under receivership. [Photo/the-star.co.ke]
In less than a year, three banks have been put under receivership in Kenya, with the latest being Chase Bank, sending shockwaves and panic in the domestic financial sector as depositors count losses. Here are a number of things to note before saving in a bank.
Security of your funds
Lately, anyone who has been watching television or reading newspaper headlines may be asking themselves, whether their money is really safe in the bank. With all the drama, stashing your cash under a mattress may seem like the simplest and safest bet. Your bank should follow sound financial practices so that it does not sink with your money.
Is it listed?
With banks collapsing, having one that is listed means it has to comply with a wide range of additional regulatory requirements and meet accepted standards of corporate governance. This makes your investment safer whether as a shareholder or customer. It is easy to monitor the financial health of a listed bank because they publish financial reports which are available to the public for scrutiny.
Competitive advantage
Sometimes called an economic moat, a competitive advantage is when a company has a leg up over its competitors through its superior products, patents, brand power, technology or operating efficiency. The strength of a bank is tied to its ability to wrestle market share from competitors if its market presence is solid then that is enough endorsement it’s a healthy institution.
Debt-to-equity ratio
This way you can find out how much debt a company carries compared to a number of equity shareholders have in the company. A bank with a low amount of debt in relation to its equity (total debt levels that are no higher than the company’s total equity levels, a ratio of 1.0 times or lower).
Used as a safety measure, these ratio tests how well the company can repay its debt obligations in the event that the company runs into serious financial problems. Generally, the lower the debt-to-equity ratio a company has, the less risky it is to you as an investor.
[photo/cdn2.trend.az]