CBK Profits II

Reading the tea leaves at Central Bank

The Central Bank of Kenya (CBK) FY 2009 (PDF) results are out and, compared to last year, it’s a different story.

Banking on other Income: CBK is another institution that has had other income yield great returns. While net interest income was down from 10.3 to 8.4 billion, and commission income on treasury bills and bonds was flat at 3 billion (investors opting for corporate bonds), CBK booked a forex gain of 13 billion ($173 mullion) up from 54 million on revaluation (a 25,000% gain) and 4.8 billion from the controversial $45 million sale of the Grand Regency Hotel. So profit for the year was 23 billion ($306 million), up from 9 billion in the year before, and CBK paid a dividend of 7.2 billion ($96 million) to the Government of Kenya (GoK) (up from 4 billion). And while CBK is exempt from income tax, KRA (the tax man) is not letting go of a Kshs. 22 million employee tax dispute with the CBK.

Make it Rain: Kenya has Kshs. 108 billion (~1.4 billion) worth of currency in circulation (up from 100 billion in ‘08). Currency costs (sourced from De La Rue) were 1.1 billion (~15 million) to produce new notes (up from 330 m).

Generous Creditor: CBK lends to employees at 3% (perks of banking) and charge the government 3% on their overdraft. In a July 07 agreement GoK agreed to pay CBK 1.11 billion p.a. over 32 years at 3% to settle a GoK overdraft dating back to 1997. The CBK act limits the GoK overdraft to 5% of gross recurrent revenue (so currently this should not exceed 17 billion)

UK assets: CBK has 194 billion in assets held with united kingdom banks, that’s even more than Kenya (66 billion), or the rest of Europe (31), and USA (20) while all their 312 billion liabilities are in Kenya. This was even after they increased euro and dollar assets, and reduced sterling pounds, compared to '08.

Loans & Rates: CBK loans to commercial banks stood at 15 billion ($200 million), up from 8.5 billion. They lent money to commercial banks at 8% p.a and earned 6.64% on treasury bills/bonds.

No Gold Standard: CBK gold holdings are just 34 million (less than $500,000) up from 28m year before. In comparison, just this week, India pipped China in the gold race buying $6.7 billion worth of gold from the IMF in hard currency (but is still only 10th largest holder)

Nairobi Christmas Tourism Expo

The annual Christmas tourism expo (Getaway ’09 fair) fair was held at Sarit center last weekend. About 75 exhibitors were offering holiday packages for Christmas and the New Year in addition to 2010 rates. Christmas and Easter are the most expensive holiday months in Kenya with rates for 23rd December to 5th January and then in the first week of April 2010 sometimes more than double the low season rates that apply for other weeks over the year -

Some of the notable ones

Joint Marketing Initiatives: (i) The Laikipia Wildlife Forum had a booklet that promoted all the main tourist attractions and venues in the Laikipia area – including wildlife reserves, cottages, lodges, ranch houses, community properties and tented camps - in places such as Nanyuki, isiolo, maralal, lewa conservancy, ol-pejeta conservancy - and with destinations such as il-ngwesi community lodge (featured in Milking the Rhino - and costs 12,500 p.p or ~$165.), Sweetwater’s and Mt. Kenya safari club - brave considering the recent banditry in the area
(ii) Beautiful brochures by the Kenya wildlife services Kenya Wildlife Services promoting destinations like Kakamega national reserve, kisite mpunguti marine park, ol donyo sabuk park (about 85 km from Nairobi)

Island hideaways: Kenya is not known for its islands, but there are some exclusive destinations e.g. in Lake Victoria, Lamu and South Coast that hardly advertise locally. But present were Samatian Island Lodge and Roberts Camp both on lake Baringo, and Crater Lake in Naivasha from the Merica Group . For wildlife in Naivasha area, there is Malewa wildlife lodge and Kigio wildlife camp (both on private ranches managed by Kigio)

Chain Groups (i) Tourism giant Serena, which has made a lot of mileage thanks to Kofi Annan being their frequent guest, has 6,500 (~$87) p.p. full board, up to 22 December at either Mara, Sweetwater’s (mt. Kenya), Amboseli, Samburu, kilaguni (Tsavo) and mountain lodges which jump to 16,000 for last week of the year (Christmas week)

Voi Wildlife Lodge have three resorts located around Tsavo parks in Voi including the manyatta camp along voi river that has 24 en-suite luxury tents each with a private swimming pool. Special rate is 6,550 p.p (~$87) sharing.

Kenya Coast: All inclusive coastal resorts include Travellers Beach and Turtle Bay (which has numerous children activities, free water sports - windsurf, snorkeling, diving in Marine Park) , while Mombasa Continental has 8,500 half board all year round (no low or high season) and 2 night flying packages form Nairobi at a cost of 28,800 (~$385)

For the South Coast: it’s time to take an interest in south coast again because (i) several airlines now fly directly to ukunda airport) and (ii) there’s a new road being built from the Nairobi-Mombasa highway direct to kwale are – both of these mean that travelers to south coast can bypass Mombasa island traffic and the likoni ferry crossing, which can add considerable time to a journey

Church owned resorts churches now offer conference venues at destinations resorts; these include PCEA church who have Milele Beach at Mombasa and Jumuia Resorts (of the national council of churches of Kenya – with hotels in Kisumu, Nakuru, Limuru and Kikambala (north coast) that have low rates e.g. half board is 4,950 (~$67) per night at Kikambala, but no booze allowed.

Mostly Equity: Laptop Ni Lazima

A new promotion dubbed laptop ni lazima [Swahili for a laptop (computer) is a must] brings together two corporate titans of Kenya – Safaricom and Equity bank. The former is the dominant mobile phone company in Kenya, while the latter is Kenya’s fastest growing bank for the last 5 years, albeit at a slowing pace.

Equity Bank has a history of financing some unusual loans and some of the ones posted on twitter last week include:

@bankelele: #Equity have loans for generators, fishnets, water tanks, solar panels, (and now) computer laptops and you can repay with cow milk
@PeeKayW not to forget cow/bull-fattening loans from #Equitybank Uganda - typically during dry season, repaid when it’s wet & prices are back up @wakabz Equity finances weddings, boda boda motorcycles. worst deal ever was 2 use nakumatt as a cash point. no member shops in nakumatt

With the financing of laptops that range from a basic Acer Aspire netbook [1kg 1.6ghz 512mb 8gb flash storage] that costs 20,000 shillings ($267) one is able to pay just 700 per month ($9/month) over two years at a flat rate of 8%. Terms to qualify for loan include having an account with Equity Bank (business owners, must have operated for 6 months), or if salaried, you salary must pass through an Equity Bank account.

For Safaricom their goal is to enhance revenue, with the cheap laptop package, now made even easier with financing from Equity Bank. Safaricom hopes to re-sell over 100,000 laptops per month through the program, all hooking up these new laptop owners to their data network as each laptop comes with a free USB modem.

With its money transfer m-pesa platform and its 3G internet offering, it competes against western union and many local internet service providers (ISP’s), commercial bank’s, and other smaller companies. Entrepreneur kahenya wrote …the African here is thinking Google moved into this line of business, here, crap, there goes that idea and likewise for Safaricom to enter an arena may signal a gloomy outlook for several small vibrant companies. From cyber cafes, the post office, ring tone providers, travel agents, today – and tomorrow it could be banks whose expensive mobile applications are not being taken up as fast as M-pesa, the dealers who helped Safaricom grow to where it is today, or any developers of any profit minded mobile business application whose line Safaricom may choose to venture into.

Youthful Tantrum

The saga at the Youth Fund continues at the board hit back at the Minister of Youth Affairs for ‘re-appointing’ the ‘previous CEO’ to his previous post. And the nightly news have duly shown two CEO’s show up at the Fund office, each claiming authority to run the Fund – one backed by the Board of Directors, one sacked by the Board (and reappointed by the Minister)
For month now the CEO has had the upper hand in the media making rounds that he had single handedly stopped the Fund from engaging in financing deal with Canadian group Enablis – one which would the Fund would have been better served by channeling these funds through local commercial banks

Now the board has hit back with a hard hitting statement giving reasons why they had fired the CEO including that he was in-subordinate, misused resources (over-claimed imprest, attend training for fun), took trips to his distant home in northern Kenya under the guise of making official trips in his government allocated car), inflated procurement contracts, among other things.

The government inspector appears to agree with the board in most of the allegations against the CEO; but their recommendation is also curious: they don’t say the CEO should be sacked, instead - “…the audit team noted the board had lost faith and trust in the CEO and that they cannot continue to work together as a team. The only prudent action by the minister is to separate the two.”

This bring to mind a similar stand-off a few years ago at Consolidated Bank of Kenya where the Board said the would not renew the contract of the CEO and asked the Minister to appoint a new CEO. However the cards were flipped on the Board and they were all sacked, while the CEO was re-appointed to a new contract

This time around the stakes are different. The board appears stronger and the Minister not as powerful; in fact she is under siege from her own assistant ministers and the Board who used comments against her this week in the media including ‘lying, crying, comical’. So how will this one end? How should it end?

Rules for Kenya Internet Trading

Continuing with the pace of more regulations to strengthen the securities industry in Kenya, the capital markets authority (CMA) has availed at their website even more draft regulations for public discussion that cover internet trading, disciplinary actions, takeovers and licensing. In addition to those rules for public offers they have;

Internet trading
- Kenyan organizations or those which target Kenyan investors need CMA approval
- Source of platforms: they may own, gets from eth exchange (NSE) or use other platforms if CMA approves.
- Those who already have should re-apply – licenses are renewed annually, and are canceled automatically if one stops being stockbroker, network or exchange
- All platforms should Ensure confidentiality, safety of data (no manipulation, virus etc), back up plan, maintain audit trials Encryption and firewalls, Prevent duplication of orders
- Stockbrokers can sponsor chat rooms
- Traders to Report monthly on number of users, transaction averages, and system downtime

Disciplinary Processes
- Proposes creation of disciplinary committee that follows civil law e.g. sharing of evidence, call witnesses, cross-examination
- Committee can warn or censure firms or persons or can suspend or revoke licenses

Take-overs (intended to sort out carbacid-type deals)
- Board of company being targeted for take over must hire an independent financial adviser
- Offeror to make public announcement, if there’s unusual movement in target company share price
- No withdrawal of offers unless the CMA rejects it; also the target company has 3 weeks to decide
- If takeover fails, have to wait at least 12 months before making anther attempt - specifies format of takeover documents and reply documents to be filed with the authorities

Licensing (for securities exchanges, stockbrokers, investment advisors)
- Stockbrokers (share cap 50 million or~$670,000) to disclose their information technology, and comply with ration for overdrafts, borrowings
- Agents can only work with one stockbroker, and may not handle client funds
- Dealers (share cap 20 million or $267,000) to disclose their information technology, and comply with ratios for overdrafts, borrowings and investment portfolio liquidity
- Investment advisers (share cap 2.5 million or ~$33,000) their portfolio may not exceed Kshs 10 million ($133,000) otherwise may have to become fund manager to handle larger business
- Fund managers (share cap 10 million) and Investment banks (share cap 250 million) must also disclose their information technology, and comply with ration for overdrafts, borrowings

send comments to ceoffice@cma.or.ke