Educating Taxpayers

Do you have questions about taxes? How to calculate Value Added (VAT), Withholding, or Pay As You Earn(PAYE) or other taxes? When to assess them, and where to pay them? It's not just large corporations who are unsure on how much tax to pay, but such questions also apply to small business owners & ordinary citizens who are all taxpayers.

The Kenya Revenue Authority (KRA) has seminars and sessions for taxpayers almost every week. There are two kinds of these, one for their online system held on most Thursday's in all the major towns (Nakuru, Eldoret, Naivasha, Meru, Kericho, Malindi, Machakos, Embu, Nyeri, Kisii, Thika, Kakamega, Kisumu, Mombasa, Nairobi) and others for new taxpayers held in the same towns as well as Bungoma, Lamu, and Voi with emphasis on introduction to VAT and income tax rights and obligations.

The classes all have Q&A sessions in which many questions are asked. This is very useful as it's better to ask them there, without consequences, than ask them when you have a tax inspector visit your business premises!

Right now KRA is running dual systems - manual and online with different taxpayers using either method to file various tax returns, monthly, quarterly, or annually. It's their intention to make more online filing mandatory for taxpayers and this will be done in a phased manner.

The goal of this is to have a more efficient tax collection system and because it's more effective to get taxpayers to cooperate than to coerce them. Also getting more people to file their tax returns online from cyber cafes or from their business premises, will result in fewer people having to queue to pay taxes at KRA offices.

Business people who bank with National Bank, Cooperative Bank and to a lesser extent KCB also have some filing advantages as these banks have invested in systems that are compatible with KRA's and so payments made at these banks are automatically reflected as their tax filings.

Capitalization in Bank Mergers

Today should see the announcement of a merger between Southern Credit and Equatorial Commercial (ECB) banks.

They are both yet to release their full year results for 2009, (have until Thursday) but this will likely be a loss year for Southern (Kshs. - 145m in 9 months) ahead of the combination of the 32nd (Southern) and 35th (equatorial) ranked banks in Kenya with combined assets of about Kshs. 9.3 billion ($120 million) - but which were not growing as fast as their smaller peers in the competitive Kenyan market with 44 commercial banks.

The Nairobi Star today reports that the reason for the merger as the need for Southern Credit to raise their capital to the Kshs 1 billion mark after a deal with foreign investors had fallen through and this amount will be the combined capital size of both banks. The article further describes this as a takeover of Southern - a bank with structures but no capital by ECB - which is a bank with capital but no structures

Elsewhere, in the Market Whisperer [offline] column of last week’s East African newspaper shoots down the justification behind a market rumour of Equity Bank’s (valued at $787 million) interest in acquiring National Bank of Kenya (valued at $133 million) as two over-capitalized banks who don’t need each other.

It notes that NBK which was restructured by the Kenya Government is in essence still a government banker beholden to government securities which account for majority of its income, rather than traditional lending while Equity is struggling to lend out its huge capital infusion and already has a (much) larger distribution and product range than NBK.

Kenya Bank Rankings 1968 Edition

From reading a 1968 book Who Controls Industry in Kenya - a report of a working party comes some history of the Kenyan banking sector. It mentions that in 1968;

- Kenya had 10 banks and all but 3 banks were foreign bank off shoots.
- They had given loans of loans of £70m, deposits of £83m – a book ratio of 83% - compared to US or US which had rations of between 33% to 50%
- Depositors received 3-4% interest on deposits, and paid interest of 7-8% on loans [today deposit rates are about the same but loan borrowers pay 12 - 25%]

There were two tiers of banks then;

The Big 3 Banks which 3 held 80% of deposits and 85% of bank assets amounting to K£111 million in 1966 were
- Barclays Bank – had assets of UK£1.4 billion and had 83 branches, and Kenyan directors included Michael Blundell, S. Waruhiu and J. Opembe. Today it has 111 branches
- Nation & Grindlays (now KCB) had assets of UK £401 million and after tax profit of £1.2 million. It had 50 branches, and 16 directors who were all British. Today KCB has 165 outlets in Kenya
_ Standard Bank (now Standard Chartered) with assets of UK £892 million and a net profit of £3.1 million. It had 41 offices, 22 directors all British.

Next 7 Banks
- Bank of Baroda
- Ottoman bank
- Bank of India
- African Banking Corporation (subsidiary of standard bank)
- Commercial bank of Africa
- Algemene bank (General Bank of Netherlands)
- Habib bank

Other institutions
- Cooperative Bank of Kenya (established in 1967)
- National Bank of Kenya (established in 1968)

Finance houses
- Big 3 (licensed as banks)

- National industrial credit (then 40% owned by Standard Bank, now NIC)
- United Dominions Corporation
- Credit finance company (now CFCStanbic)

Others registered as ordinary companies
- Transaction finance corporation (subsidiary of cooper motor corporation CMC)
- Industrial promotion services (Now IPS, was est. in 1963 by the Aga Khan)
- Africindo industrial development (powerful Asian industrialists seeking credit facilities for exports o India with training for Kenyans there)

Development corporations
The big 3 commercial banks also owned development corporations to undertake longer-term investments than normal banks accepted; these were Barleys Overseas Development [assets of B£9m and 88 projects in east Africa], National & Grindalys Finance and Development [B£3m] and Standard Bank Development Corporation

Building societies
As at 1964 they had loaned k£3m more than they had in deposits; this was after sudden withdrawal in 1959 of £4m savings by European and Asian depositors
- Savings & loan society
- East African building society
- First permanent (east Africa)
- Kenya building society (subsidiary of commonwealth development corporation CDC)
- housing finance company of Kenya (now Housing Finance)

Equity Bank 2009 AGM

Equity Bank 2009 AGM (it’s 5th) was held at the Kenyatta International Conference Centre on Thursday March 26. This capped another year of spectacular performance by the bank during an otherwise difficult 2008 US$1 = Kshs 80



Start on time? Last Equity forum was 45 min late: this one was scheduled to start at 10 a.m. and was late by about the same delay. Last time we were entertained by an entire Boney M album, this time it was a series of advertisements for the bank, with a patriotic them recalling images of tourist splendor (majestic Mara), agricultural potential and athletic achievements (Kipchoge Keino, safari rally, safari sevens rugby) all ending with the line we are proud to be Kenyan

The main speakers of the day were Peter Munga (Chairman – Chair), James Mwangi CEO and Mary Wamae (Company Secretary)

The Chairman took up a long time by reading his entire written speech – almost 20 minutes. He handed over to the CEO who also ran down a series of financial highlights for the year including;

- Market capitalization rose in 2008 from 54 billion to 66 billion (only NSE company whose shares appreciated in 2008 - by 3%)
- Earning per share up from 6.9 to 10.6 - and dividend per share also up 50% from 2 to 3
- Cost to income ratio unchanged at 60%, and down from almost 80 four years ago
- Helios investment (sale of 25% for 11 billion) was the smartest thing the board did – gave the bank the capital & muscle to grow. With their 19 billion capital and subordinated debt of 6 billion gave the bank 27 billion of capital (most cap bank)
- Opened 35% branches, installed 150 ATM’s

Speech also took about 20 min as he added:
- All the awards the bank won in 2008 (Euro money, Africa Investor) which were on display for good measure
- The bank is a case study at Columbia, Harvard, Stanford, IESE and Lagos

The company’s secretary also read out the report of the directors never seen that happen

Fun stuff at AGM's is always the Q&A with shareholders:

Bad blood in banking sector one shareholder commended the bank for the fight-back in his area (Machakos) where a rumors led to a run at the branch, and a team (with cash) visited to reassure residents that the bank was strong. The bad blood was attributed to competitors who are jealous of Equity’s bank success - CEO mentioned a proverb of a tress that grows taller than the forest canopy and then gets buffeted by winds from all directions. He said they can withstands such challenges because of (i) capital of almost 27 billion (ii) liquidity of almost 66% and (iii) good asset quality

Why borrow foreign funds? one shareholder asked why the bank borrowed. The lines provide long-term funds for long term lending 3-5 years). E.g. a German loan was to support investment in irrigation schemes, of which there are now 3. CEO assured the shareholders that the loans from (Dutch, French, and German institutions) were all denominated and would be repaid in Kenya shillings, cushioning the bank from exchange losses

Most generous company in Kenya one shareholder asked why the company did not publicly participate in corporate social responsibility (CSR) programs? CEO said that Equity, unlike other companies, which gave a little money with a lot of publicity, was actually the biggest corporate spender in Kenya – bigger even than the Telco’s (Safaricom?, Zain?) and gave some examples
– when they opened 4 branches in Nyanza in 2008, they donated 20,000 beehives to women’s group’s as well as 10,000 avocado seedlings –avocado’s and honey were the most promising products of the region (i.e. beehive can generate 36,000 to 48,000 annually) .
– in Eastern province, they donated sorghum seeds to the residents of Ukambani – and will partner with east African breweries (EABL) to ensure that harvest from the residents will be bough by the beer giant.
– In the education sector they sponsored 186 top performing high school student by paying their university fees at a cost of 112 million shillings
– Fanikisha loans (to women groups) has become their flagship product with over 187,000 loans, and in agriculture disbursed 70,000 new loans in 2008
This kind of CSR that Equity engages in, is not publicity, but it is actually sustainable and transform lives by giving individuals the power to generate incomes

Regional diversification Uganda was a takeover, Sudan is a green field and they will watch the growth to see which strategy is better for expansion to other African countries.
- Uganda starts operations at end of March with 30 branches (the biggest branch network in Uganda), and open another 20 this year – he said they had already increased profit by 100 in the second half of 2008 since they took over, even while doing a re-brand operation. CEO said Uganda had better growth prospects than Kenya which had a lot of negative politics
- Sudan starts in April
slip of the tongue? CEO at one point said … “...when we open in South Africa” while also mentioning looking at Rwanda and Tanzania as being next

Buy other Banks? one shareholder asked that they buy up more shares in housing finance, while another suggested they also buy up National Bank of Kenya in which the government is offloading more shares. CEO said they would do their due diligence on NBK and if they were announced as being in the running, shareholders would know soon, but if not, then there was something they did not like after their analysis of NBK (as far back as 2005, Equity have been interested in NBK). CEO mentioned that RBS of Scotland took over a bank before the economic crisis, and choked on that toxic investment that has reduced its value to a mere fraction (from $119 billion to $3 billion)

Enough bad loan provisions? these increased from 600 million to 1 billion, but was that enough one shareholder asked, considering that some of these were for Safaricom shares? CEO said they lent individual 80% for Safaricom shares with investor paying 20%, then the over-subscribed IPO allocated just 21% (which the investor paid or), and so the 1% loan was repaid in the first week

Poor bank netwoek systems one shareholder complained about the downtime of the bank’s IT systems – at branches or at ATM’s which perhaps led to people saying the bank was shaky. CEO said they have been upgrading the platform over the last few weeks and it has caused some hiccups but they would be over. Equity is now branchless, you can bank in Kenya, Uganda, and Sudan seamlessly. Also look for new branches as queues and crowds will no longer be an issue

Kenya immune from global crisis? CEO said in year 2000, Kenya economy shrunk by 2% while equity grew by 100%
- stock market dipped in 2008 as foreign investors (who constitute 70% of trading) left the NSE, but they are now coming back
- said Kenyans were being scared. there are no toxic loans in the sector. If Kenyan economy get by 2.8 in 2008 and is expected to grow by 3.6% in 2009 , and even though tourist number and export will be affected, overall we should not unnecessarily panic about... except in the capital markets

Argument against being a stock-broker one shareholder asked why they did not buy a stockbroker like NIC (bought Solid stockbrokers) and yesterday Coop bank (bought into Bob Matthews stockbroker)? CEO said that not going to happen as stockbrokers have such bad reputations and toxic assets. Equity already has a custodial license, they already employ 8 stockbrokers, and get 70% of the transactional income – so why the need to become a broker? They get the profit now, without the hassle
- said as custodian, they are the largest custodial account holder with over 50% of all CDS accounts in Kenya
- he exhorted all shareholders to transfer their shares from their stockbrokers to Equity Bank.

Shareholder votes
- first and final dividend for the year of Kshs. 3 per ordinary share of Kshs. 5
- Election of directors: Ernest nzovu was re-elected while Dr Ezekiel Alembi (of Kenyatta University) and Professor Shem migot- Adholla (former GoK dream team PS) were elected as new directors. The Chairman mentioned that Peter njeru Gachuba (Africap) and Linus Gitahi (CEO Nation media Group) had retired to make way for the new directors.

Share split
can’t be selfish when doing well
- Special Business was the share split that every ordinary share be sub-divided into ten shares
- CEO explained that shares had become too expensive at the Nairobi Stock Exchange, which made it difficult for shareholders to judge their true values. E.g. to buy minimum 100 shares of equity costs 12,700 while to buy KCB costs 1,700 and co-op just 610 shillings
- company has 10,000 shareholders and 3.5 million customers. The share split will enable more customers to become shareholders
CEO gave history of bonuses and splits
i Year 2000: share split- 1 share sub-divided into 4
ii 2004 bonus - 5 bonus shares for each one held
iii 2007 bonus - 3 bonus shares for one held
iv 2009 split - 1 share split into 10
- so if you had one share in 2000 worth 20 shillings, that share was now worth 7,500
- the register closed yesterday (march 25) and the new shares start trading on May 25
- CEO exhorted shareholders to hold on to their shares, as they could be expected to go from the current 13 (130) to 34 (340 was the previous high before the bear market)


Odd moments
- Managers and board were asked stand and bow to the shareholders
- CEO was at one time referred to as chief servant
- CEO seemed to delight in the woes of citi bank and the US banking sector
- Meeting started and closed with a positive prayer by Canon (priest) who obviously must be a shareholder too.

Goodies
Buffet snacks served outside by safari park catering staff tea/soda – with samosas, cake, fish fingers, croissants,

Summary
Nice AGM. Equity is now media savvy and the event was well attended and covered articulately by the press

Bank Review '07: Part III

Middle of the pack

20. (20) Fina Bank: Estimated assets of 7.6 billion ($108 million) and profits of 90 million shillings ($1.3 million), with growth of about 20% from a year ago. Opened upcountry branches in Kenya (Nakuru, Mombasa, and Eldoret) and will start branches in Uganda next year, bridging the Fina to their existing Rwanda operations.

19. (22) Family Bank: Estimated assets of 9 billion and profits of 220 million in 2007. Known as Equity Blue, it has enjoyed similarly rapid growth (though slightly less this year) since converting from a building society to a bank. It has followed Equity's footsteps, applying for the same exemptions granted to Equity - such early as admission to the clearing house and permission to issue chequebooks. It has also opened branches at a fast rate and its paperless banking model and women-entrepreneur loan models are a hit with rural Kenyans. But, in the year in which they converted to a Bank, they also lost their long serving CEO over board dispute and got sued by a Central Bank official who their Chairman had accused of being corrupt.

18. (18) EABS: Estimated assets of 9 billion and profits of 15 million. Teething pains continue at the former building society which converted to a bank three years ago, and had growth of about 5% in 2007.

17. (17) Housing Finance : Estimated assets of 10.5 billion and profit of 120 million, with loans 15% up from a year ago but assets only 2%. The bank tried to merge with Development Bank of Kenya, and later raise cash in a rights issue, but both plans were scuttled by regulators; later the board signed to sell a 25% stake to Equity Bank. HFCK and S&L (owned by KCB) are still major players in the mortgages sector which is becoming a crowded field with newer entrants Stanbic and Standard Chartered. HF also lost a class action lawsuit filed by customers over illegal bank charges.

16. (19) Bank of India: Estimated assets of 11 billion and profit of 500 million for quiet bank that grew at about 25%. Does a lot of India related business and Kenya government securities.

15. (16) Imperial Bank: Estimated assets of 11.5 billion and profits of 600 million. In 2007, the bank grew about 40% as it launched shariah banking, asset finance, children’s accounts and opened new branches at the coast.

14. (14) Bank of Baroda: Estimated assets of 14.9 billion and profit of 600 million for quiet bank that grew at about 25% and does a lot of Kenya government securities investing. It has been in Kenya for 52 years

13. (15) Prime Bank : Estimated assets of 15 billion and profits of 350 million. The fast growing bank will consolidate with affiliate Prime capital company by year end leading to a much larger bank in 2008.

12. (11) Investment & Mortgages: Estimated assets of 30 billion and profits of 1.3 billion. Fast growing bank also diversified into shariah banking, custodial services and also acquired two new euro bank shareholders.

11. (12) Diamond Trust : Estimated assets of 31 billion and profits of 950 million. In 2007 the bank grew about 45% as it opened several new branches, had a second rights issue in less than a year and also acquired a majority stake in Diamond Trust Tanzania.

10. (8) NIC: Estimated assets of 34 billion and profit of 1.1 billion. The bank grew at about 30% in 2007. It had a rights issue, rewarded shareholders with a bonus, went into custodial and investment banking (acquiring a stockbrokerage firm). But the market leader in asset finance also faced increased competition from other banks in this field and was dropped from NSE share index in favour of ICDCI.

9. (5) Citibank Kenya: Estimated assets of 38 billion and profit of 1.9 billion shillings. Otherwise a flat year for the bank whose parent faced her own troubles in the US banking meltdown. Growth was about 5% as the bank got into the local IPO advisory races.

8. (6) Commercial Bank of Africa: Estimated assets of 40 billion and profit of 1.4 billion. Growth of 9% from a year ago got into unit trusts, home loans, insurance, and funding of women projects. Similar to CFC and would be prime candidate for a merger.

7. (7) National Bank of Kenya: Estimated assets of 45 billion ($645 million) and profit of 1.4 billion shillings ($20 million) for 2007. NBK finally had its most of its non- performing portfolio debt albatross sorted out with a government bailout in the form of bonds maturing over the next 10 years. Now that its cleaned up, it could once again be a target of Stanbic again who two years ago offered to buy out NSSF’s 48% after their CFC merger is done in 2008 (Equity Bank is a also long shot). During the year, NBK partnered with Standard investment bank offer stockbroking services through NBK branches and also tried to have businessman Ketan Somaia jailed over an unpaid debt to the bank

Jobs

- Chase Bank; Head of ICT, senior manager operations, head of trade finance. apply by snail mail to the Head of HR 28987-00200 by 29/2
- Cabin crew at Emirates airlines
- Fina Bank Uganda: The bank is starting operation in Uganda in January 2008, and those interested in working there should send detailed CVs to hr@finabank.com.
- tough job - Head of marketing & corporate communications at Kenya Airways apply online by 15/1

Economic Matrix

watch me inflate my salary while dodging taxes

This week has been spent learning the ropes of learning new core banking system. We are in a test module, posting transactions and simulating scenarios, testing what/if limits of the system. So I can award myself a seven digit salary increase, borrow ten times that amount, draw cheques, and even transfer funds from someone else's account to repay my loan, all at the click of a button - a real Cool world.

This week our members of parliament gave us another bile inducing moment with yet another attempt to raise their salaries. These are people who live in an economic matrix where they believe that ordinary laws do not apply to them. They raise their own salaries (which other job can claim that?), pay a pittance in taxes, and are able to propose and play with myriad bills – that all concern other peoples money. From day one, when they blackmailed arm-twisted the then Finance Minister (2003) to increase their salaries they have been on a tear as the rest of the country watches. Now there's a proposal to increased their number either through more constituencies or women seats. I'd like to see more women parliamentarians, but I believe i can already name most of the women MP's who will sit in parliament next year – just add up all the defeated candidates and past women MP's, and activists and you get an idea of the next group to get paid by the exchequer. As much as this parliament has accomplished - sexual offenses bill, CDF, education, health, anti-corruption etc. - this parliament will be remembered for salary increases and lack of quorum.

As a citizen, I applaud the economic gains made, but as a taxpayer I lament the waste that the increased tax collection has not been prudently applied. We don't need more ministers or MP's who live an economic matrix of their own.

Anyway, on to other news


Barclays
- has opened 32 branches since it's change of direction last year
- You can pay for Kenya Re and other shares with Barclays Visa card at Sterling, Suntra, CFC, Ashbu and Discount stockbrokers.
- Barclays stretching personal loan repayments from 1 year to 5 years. This way, they will earn more money interest income while postponing some potentially bad debts (in duplum era) after co-op bank did the same earlier this year.

- CFC has an arrangement with postal corporation of Kenya to enable people to buy shares at post offices throughout Kenya. This is the third major attempt to extend a stockbroker's reach after Suntra/Postbank and K-Rep/Ngenye Kariuki partnerships.

Equity bank to take up 20% of housing finance. Spruce up on the banking act, as this is not a popular activity with the Central bank i.e. banks owning shares in other banks. Still, it's amazing how many records Equity continues to break. Last year, they attained the billion shilling profit mark; this year, they achieved that in six months

ICDCI stock to watch according to bloggers - Fintrade Capital and Smart Biz Africa

National bank: Having sorted out its non performing debt problem, will it become a target for Stanbic again, after CFC merger is done? Also Equity is a long shot

NIC: In the week it was dropped from the 20 share index (in favor of ICDCI), it was also the best performing stock after announcing a rights issue and bonus share proposal . This former Barclays subsidiary has been the leading provider of asset finance to individuals and corporations in Kenya.

Other

Kenya Airways receives the first Embraer 170 LR(two more to follow) plane which will serve Zanzibar, Mombasa and Dar es Salaam routes.

Nation media group has had another record profit half year and an interim dividend of 3/= to be paid. They launched the business daily a few months ago, but could they be about to launch yet another newspaper in September?

It may be called the Daily Star, and will come a few months after Kiss FM's Nairobi Star. Both Business daily and the Nairobi Star (where's the John Githongo column and news website?)have faded somewhat from public presence of mind since their high profile launches. B-Daily is a great read online, and should remain so.

The Minister of Finance talks about having virtual meeting to cut costs – perhaps like Vodafone which has an AGM page with webcast and voting items online

Award opportunity
opportunity for 5 dynamic African companies from either Burundi Rwanda Tanzania Uganda or Kenya to earn up to $50,000.

NBK and Econet restructure

National Bank: was the first bank to release half year results with assets up 25%, deposits up 22% and profits up 35% from June 2006. The big transformation comes from Kshs. 20 government bond plan which have now been absorbed in the bank's financial statements. What does it do? While government securities are up 6X (from Kshs. 3.96 to 23.57 billion), it also chops 2/3 of loans off their books (drop to 27.34b to Kshs. 7.34 billion). The restructured balance sheet also helped profits as NBK reduced provisions from Kshs. 1b last June to Kshs. 350m at this half year.

But NBK is not out of the woods yet. While the gross non performing assets from 34b to a more manageable Kshs. 5 billion this is still about 75% of NBK's loan book which, as the MD mentioned at the AGM many cases are still stuck in court.

Econet: After three years of being persona non grata, Econet has been given the green light by the government to roll out operations and its network. In the three wasted years that Econet has wrangled with shareholders and the government, much has changed. Celtel has engaged super-profitable Safaricom in a war for customers even as Telkom wireless has become a viable alternative to an extent that the need for a third mobile operator may have passed. Also what happened to anyone who applied for jobs there? For Econet, not going to be easy to assert themselves and with networks so expensive and unless they get new shareholders and partners with investment resources and regulatory muscle.

Equity muscle: strong back to get heavy hitters like the Minister of Finance, the Central Bank of Kenya and the Nairobi Stock Exchange to come to your defense. Econet should talk to them

Investor outreach: Following in the steps of the Suntra - Postbank partnership, stockbroker Ngenye Kariuki has partnered with K-Rep bank to offer stockbroking services at the banks branches.

Happenings in North Eastern Kenya: The Kenya Revenue Authority sets up shop at Wajir Airport as the Kenya power & lighting company plans to open up stations in Mandera, Wajir, and Garissa.

Who needs e-mail? : The postal corporation of Kenya plans to increase the cost of corporate mail boxes and sending most letters (small/mid size envelopes), to reflect the increased cost of doing business.

Takeovers: James Finlay takes over Homegrown (flowers), and Krystalline Salt acquires the Mombasa salt works company

Government pork : Jaindi Kisero points some out uncertain projects that are going to be funded by tax revenue including 1.3billion to purchase a ranch in Nyeri District to settle squatters, 400 million to settle hawkers, 200 million to purchase shares in De La Rue, Sh 140 to buy shares in Panpaper, 641 million for coffee debts, 664 million for pyrethrum debt, and 15 billion for Telkoms’ tax arrears

Education
- Teachers over-borrowing: The Teacher Service Commission (TSC) has told banks it will stop allowing check-off loans. They fear some teacher have over-committed themselves i.e. borrowed so much that they take home less than 1/3 of their salary after all deductions are made. (One teacher is not happy about the change)
- Universities: Two new universities to open soon - KCA University at Ruaraka and Presbyterian University at Kikuyu. Also both Kenya Methodist University and University of Nairobi will open campuses in Mombasa as Kenyatta University opens one in Kitui

Odds:
- MP Jakoyo Midiwo has sued to wind up the Kenya Times (Media Trust)
- Former managing director of Mugoya, James Mugoya Isabirye, is wanted by the Kenya police. The receiver manager has also offered a generous reward
- Why does the High court have a summer vacation (from 1 august to 15 September)?

Jobs
- Action Aid: head of finance Somalia
- Equity bank: credit managers, bank managers. E-mail jobs@equitybank.co.ke by 28/7
- First community bank: IT product specialist, audit offer, business relationship officers, corporate relationship assistants, private banking officers, credit administration officers, trade finance assistant managers, tellers, head tellers, customer service representatives. Apply to fcb_vacancies@ahmedabdi.com by 30/7
- Knight Frank: senior valuer, property manager, residential sales manager, site acquisition agent. Email info@ke.knightfrank.com by 27/7
- Sub editors at the Nairobi Star newspaper: Apply to jobs@nairobistar.com by 31/7
- Spencon: head of internal audit, senior internal auditor, internal auditor, business analyst, marketing & communications assistant, group contracts manager, contracts manager, IT/ERP professionals. E-mail recruitment@spencon.net by 10/8

Convenient banking

making trades offs as convenient banking is not the same thing as cheap banking

Equity has been the fastest growing bank in the country over the last few years. It has won customers, now 1+ million, and has sent bigger banks banks back to the drawing board to woo & retain their customers.

However, while banking with them may not be cheap for a business, it is convenient, and offers finance and flexibility to an upcoming business. People coming from abroad complain about the cost of making mobile calls here – saying they are expensive. But compared to what? A taxi driver will make a 30 shilling mobile phone call to secure a 2,000 shilling job as his phone is his office.

Same with Equity their low entry minimums suit individuals and start ups. And while some of their charges are rather hefty (3% for ENC and 10% of amount for a temporary overdrafts), as a businesswoman told me today, their quick decision making and the fact that they are the only bank that can offer these facilities to her make them the optimal bank for now. Getting cheques cleared, guarantees, and payments to suppliers matter more to her now, than the cost of these services, and help her build a credit record for the future. Once she is more established,. she will look question the transaction costs and have other banks now wooing her business.

Other banking briefs

According to Africa confidential, Kenya is favored to be the new host country for the African development bank, with Botswana second in the ranking. However Ivory Coast is back in the running following the signing of a peace accord. More on homeless banks.

The CBR Bank rate was lowered from 10 to 8.5%

The Government has commissioned a study to look into the low uptake of youth enterprise fund and agriculture development funds. They are blaming banks for asking borrowers for collateral and 3 month bank statements – terms which were not spelt out in the funds. from an offline story from the East Africa:

CFC Stanbic bank pre –merger comparisons

Diamond Trust acquired a majority shareholding in Diamond Trust in the just concluded rights issue.

Equity Bank
- Looking to enter the money transfer business
- To buy Housing Finance bank - what do the bloggers say?

Family bank got admitted to the CBK bank clearing house earlier in June, just a few weeks after being licensed. Family took advantage and pressed for an exemption (on a two year waiting period), similar to that granted to Equity Bank when it also became a bank. from an offline story from the standard

National Bank is seeking to commit Ketan Somaia to civil jail over a 17 million debt

Pyramids schemes continue to
thrive despite numerous warnings. However, some schemes feeling a cash pinch are passing the blame to the central bank who are limiting the interest they can pay depositors to 10% p.a. - before they were paying over 10% per month.

National Bank AGM

National Bank of Kenya’s 38th annual general meeting was held on Friday June 22 2007 at KICC. The bank has been profitable for the last few years but has not been able to pay dividends to long suffering shareholders owing to an accumulated deficit from past losses.

some highlights

The debt and (no) dividend has dominated any discussion about NBK and following the government settlement of their debt via Kshs 20.3 billion in bonds, spread out over 15 years, there was some optimism that the shareholders would finally get their due. Their auditors (Deloitte) have raised this matter of emphasis for several years as NBK has continued to claim interest on these government initiated loans with the understanding that it was sovereign debt to be settled one day (which has now happened).

However in a long statement by the chairman (Mr. Muhindi), he mentioned that they were still not in a position to pay dividends and shareholders should not dwell on the matter. He mentioned that NBK's share price had appreciated by over 30 shillings in the past year, and to any share trader, that was more than any Kenyan company paid in dividends last year.

Unfortunately the dividend issue came up and even the first three shareholders all asked about it among the many questions they posed. The Chairman mentioned that the banking act, companies act, and NBK articles all forbade payment as long as there was a deficit in the revenue account – and that the government bond would not wipe out the deficit, only profits can do that which may not take another four years

bad debts NBK collected 503 million shillings in bad debts which was up from 403m the year before. He said they have still not scratched the surface as many of their cases were still in court.

privatization of NBK was mentioned in the budget last week; however the board does not know more than what was in the media. I.e. that GoK and NSSF would sell their shares either to the public or a strategic partner. On merger possibilities the board would consider the right merger opportunity if it came up (but not for share capital reasons)

other shareholder Q’s

corporate social responsibility NBK assisted in the famine relief program last year, set up a ward at Kenyatta hospital, assisted schools for orphans in Mombasa and is building a kitchen for Mbagathi hospital.

directors why should directors get allowance when we have no divided and some directors don’t even attend meetings?

who got paid? a small amount of dividend (174,000 shillings) was paid in 2006 and shareholders wanted to know to who! Management stated that the correct term should be dividend collected - as some shareholders still have not claimed their dividends (last paid in 1997 and amount totaling 271 million)

what is statutory reserve it is a new rule for all banks in Kenya that even for performing portfolio, 3% must be set aside to provide for any eventual bad debts.

path to dividends: Responding to the umpteenth question on dividends, the MD (Mr. Marambii) stated that there were two ways to get NBK shareholders back on the path to dividends (i) one was to accumulate profits to pay off the deficit – which could take several years or (ii) was rot approve a reduction in the banks capital which would wipe out the deficit. Going forward any profits thereafter could be applied to dividends. He said that shareholders had rejected such a move a few years before but the board was leaning towards bring the option back to the table

goodies NBK tote bag only and lunch. Some shareholders not happy said that the company could have also given a t-shirt while another suggested that they could have saved the money spent on the bags, cold lunch, and printing the annual reports (mgmt: says they cost 60/= each) and paid dividend instead. I did not stick around for lunch which looked like it was going to be a chaotic buffet

Bank Roundup (June 07)

all banks share capital raised from 250 million to 1 billion. At the beginning of the year, 25 of 43 banks were below this mark (with 7 banks below 500 million). This is an update/reversal of an older proposal to lower the share capital when some banks were struggling a few years ago. Not many mergers expected though it may prompt some mid size banks to go for a public listing to raise cash (only 3 banks lost money last year)

Central bank has advertised for some currency destruction contracts as the east African reports on talks for the government to invest in the current currency supplier DE La Rue

Diamond Trust to venture into Islamic Banking

East African Development Bank profit went up by 229% to $4.6 million – up from $1.4 million the year before. Assets increased to $262m dollars and their non-performing portfolio reduced by 11%

Equity bank won an international award – the 2007 global vision in microfinance award. Also KTN reported that the that the bank will open three women only branches in Nairobi

Two month old Family Bank is seeking a new managing director

KCB to expand into Uganda as it also wins an international award – the Africa investor for best performing stock in Africa award (shares price up 97% ) > but the company also held one of the longest dreariest AGM’s in history on Friday

National bank finally got recapitalized. NBK could receive 346 million in 2007 and 2008, a bullet payment in 2009 of 4.3 billion, 220m in 2010 and 2011 and another bullet payment of 5.2 billion in 2012. For 2013 - 2015 123m each and in 2016 a lump sum of 5.2b. 2017 to 2020 58m each and a final payment of 6 billion – for a total of Kshs. 22.48 billion ($340 million)

NIC to increase authorized share capital via a rights issue. The board approved it on June 14, but there was no mention at the AGM on May 16. This follows a Fitch Report indicating that mid-size Kenyan banks need to increase their capital

opportunities

East African breweries is accepting applications for a graduate management program. Details online and D/L is 22/6

Family bank: chief executive officer, credit manager. Apply through deloitte - esd@deloitte.co.ke by 29/6

Kenital solar : sales & marketing manager, technical manager, engineer sales executives (5) regional managers (4). Apply to cm@kenital.com by 22/6

Country manager at Steadman Tanzania . Apply to janis@steadman-group.com by 22/6

A dozen IT, research and engineering jobs at Safaricom

Writers at a new Swahili newspaper. Apply to gazetijipya@gmail.com

Project management specialist at USAID.apply to hrnaiorobi@usaid.gov

Rhodes scholarships: 2 for Kenyans to pursue full time post graduate study at the University of Oxford. Apply to rhodeskec@wananchi.com by 15/9

Real estate: for the monied in the Diaspora, those who have worked hard and are looking to return in style, consider investing in Kihingo village a gated community development in Kitusuru where prices start at $500,000.

2006 Kenya banking review

still Barclays country

based on reported figures for September 2006

1. Barclays Bank of Kenya [assets worth 117.17 billion shillings ($1.67 billion)] In 2006 Barclays made a major policy about turn and announced expansion plans including reopening branches they had closed a few years ago. They also venture into Shariah compliant banking as did KCB, I&M, Dubai and K-Rep banks.

Compared to September 2005, assets were up 10%, deposits 12%, loans 14% but income was up only 6%. They also increased their investment in government securities to about 40% of the loan book. Still despite being Kenya’s largest bank, it also has the 2nd highest return on assets at 4.16% (second only to Equity Bank at 4.74%)Barclays shareholders had a very happy year, which saw them earn a bonus share and a share split in addition to their usual top dividend.

2. Kenya Commercial Bank [84.92 billion] KCB nudged passed Stanchart in assets while its share price zoomed passed though Stanchart still has a higher market cap and better returns. KCB’s expansive rural branch network was the envy of other banks such as Barclays and it also expanded into Sudan in 2006. KCB’s assets were up 18%, deposits 17%, loan 13% while income was up 26% from a year ago

3. Standard Chartered [84.09 billion] The bank launched several new products including accounts aimed as women (Diva) and children and adult savings (Safari) accounts. Stanchart also appointed a new MD – Mr. Etemesi. Assets up 18% deposits 16% loan s22% and income 10% while it also increased its investment in government securities

4. Cooperative Bank [55.17 billion] Co-op’s strong recovery continued and it remains a strong candidate for a listing in the next two years. One of their unique traditional products - kids’ savings accounts – was invaded by other banks this year. Compared to last September, assets were up 12%, deposits up 18%, income up 19%, but loans down by 16%. Also their total non performing assets (NPA’s) doubled to 17 billion while the bank also tripled its in investment in government securities during the year.

5. National Bank of Kenya [39.37 billion] NBK is yet to have its capital and debt restructuring done even though it is promised every year by the Government and despite reporting profits each quarter, it was not able to pay any dividends. The Bank launched a low fee (Taifa) account to counter the crowds flocking to Equity and Co-op banks. Assets and loan were up 10%, deposits and income up 16% and it tripled investment in government securities but NPA have also doubled to from a year ago.

6. Citibank Kenya [35.43 billion] Assets up 12% loans up 42% and income up 33%. Was a late entrant to the share craze providing advisory services to the Mumias rights issue in November.

7. Commercial Bank of Africa [35.12 billion] CBA opened a new headquarters and is expected to venture into stockbroking. Assets, deposits, loans, and income were all up 21% but NPA also up 45% from a year ago.

8. CFC [25.04 billion] Had a successful rights issue to raise capital and also continued to roll out new insurance products. Its stockbroking unit is the largest in the country and was reported to have processed Eveready applications amounts that exceeded the shares being offered. CFC doubled its investment in government securities, assets were up 35%, deposits and loans up 20%, income up 61% but NPA were also up by 74% from the year before.

9. NIC [23.55] Still the leader in asset finance while their flat fee (MOVE) was imitated by other banks. Assets and deposits were up 18%, loans 15%, and income 33%, but NPA’s doubled from a year ago also. Shareholders finally enjoyed some significant price appreciation after being stuck at 50 /= forever.

10. Standard Bank (Stanbic) [23.29 billion] Many Kenyans bought shares in their Ugandan subsidiary while the Bank has expressed an interest in investing in NBK once it is restructured. Stanbic which has the lowest NPA (followed by Citibank and D-Trust) had assets up 54% deposits and loans up 44% and income was up 49%.

11 Investment & Mortgages [21.79 billion] I&M had assets up 25% deposits 27% loans 36% and income up 33% as the bank made a push into the credit card sector.

12 Diamond Trust [19.14 billion] Raised capital in an over-subscribed rights issue in December and is rumored to consolidate with a sister bank next year. Assets were up 27% deposits 29% loans 25% while income was up 33% from a year ago.

13 Equity [16.33 billion] Kenya’s s fastest growing bank had assets up 63% deposits 81% loans 105% and income 90% however expenses in Q3 grew faster than income and NPA’s are up 165%. It has the highest returns (assets 5% and equity 46%) and successfully listed all their shares on the NSE in 2006

14 Bank of Baroda [11.43 billion] Assets and deposits up 29%, loans up 27%, income up 22% and profit could double this year.

15 Housing Finance [9.8 billion] Has a new MD while its share price appreciated beyond expectation leaving it with the highest P/E on the NSE. Assets, deposits, loans, income, and expenses remained basically unchanged from a year ago while the bank has converted cash into government securities. The lack of new loan growth resulted in NPA’s forming a greater portion (72%) of loan book.

16 Prime Bank [9.26 billion] Assets and income up 40%, deposits 43% loan 29% and profits are up 69% from a year ago.

17 EABS Bank [8.55 billion] Teething pains continue as assets shrunk by 4% but with a positive outlook as income increased twice as fast as operating expenses this year, but still NPA’s are at 72%.

18 Imperial [8.47 billion] Assets up 5% loan 146% and securities up 60% as the bank had redeployed about 1 billion in placements. Income is up 13% and Imperial has among the top 5 returns (even better than Citibank)

19 Bank of India [8.15 billion] Assets and deposits up 20%, loans up 56%, income up 46% but NPA up 43% - still the bank is on track for a huge profit this year.

20 Bank of Africa [6.23 billion] Expects to open another Nairobi branch and but into a bank in Uganda to go with the one it invested into in Tanzania. Assets up 17% deposits 35% loans 16% and income up 31% and despite increase expansion costs remains on track to achieve a profit this year.

21 Fina [6.15 billion] One of the banks that has championed SME financing and also has an extensive operation in Rwanda. Assets unchanged from a year ago while loans up 17% profits will be 41% higher, but NPA also up 59%.

22 Habib AG Zurich [5.07 billion] Asset up 9%, loans 16% and income up 11% at this bank which invests primarily in government securities.

23 ABC [4.95 billion] Assets up 7% with loans up 4%, and income up 20% from a year ago however NPA’s also up 46%.

24 Giro [4.93 billion] Nothing much heard from partnership with SBI (India) and
Assets were up 3%, income up 9%, but loans down 13% and profit will be less than 2005.

25 Guardian [4.66 billion] Assets up 2%, and bank has upped its investment in government securities by 61% compared to 2% growth in loans – however NPA up 216% .

26 K-Rep [4.52 billion] One of the banks that pioneered the micro-finance sector now finds itself being crowded out by new entrants advertising all manner of SME packages. It will administer an ADB guaranteed line of credit for women entrepreneurs (along with CFC and CBA). Assets up 31,% deposits 59& and income up 50% proving that micro finance is low risk niche with only 4% NPA’s even as loans by K-Rep increased by 40%.

28 Southern Credit [4.27 billion] Assets up 1% deposits up 6% and loans 9% but with NPA’s up 52% from a year ago at the bank with a major credit card arm.

29 Victoria [4.19 billion] Assets and deposits up 8% and the bank has reduced its NPA’s by 49% and now has the lowest NPA in the country at 1% with 1 billion shilling in the bank.

30 Charterhouse [3.94 billion] The bank was placed under statutory management following money laundering and tax evasion allegations and has fought back through the courts and the press (& with some questionable tactics). Even as depositors are locked out, assets up 19% but profits down 33% and the CBK manager increased investments in government securities - up by 332% (as directed by the law)

31 Equatorial [3.67 billion] A Sameer bank had assets up 1% but reduced government securities by 72% to increase loans by 22% but NPA also up 75%.

32 Middle East [3.45 billion] Assets up 1%, loans up 45%, but deposits down 10% yet bank may increase its profit as a result of an improved NPA positions.

33 Consolidated [3.45 billion] Assets up 29%, deposits & loans up 33% and despite high NPA it may achieve a profit in 2006. The Deposit protection fund is expected to sell its 50% stake in the bank, but without a profitable track record it will remain private.

34 Chase [3.29 billion] Assets up 33%, deposit 53%, loans & income up 43% but NPA also up 42%.

35 Development Bank of Kenya [3.05 billion] Assets up 20%, deposits & loans are up 50% but NPA up 52%.

36 Habib Bank [3.02 billion] Assets, deposit, and loans, all up 4% this year at Habib which is rumored to consolidate with sister bank in 2007. Has the highest ratio of investment in government securities.

37 Credit [2.77 billion] Assets down 6% and NPA up 125% as the bank drops 3 places in rankings.

38 Transnational [2.44 billion] Assets up 12%, while deposits & loans up 20% from a year ago but NPA also up 73%.

39 Fidelity [2.11 billion] Income up 50% while deposits & loans both up 35% from a year ago.

40 Paramount Universal [2.05 billion] Assets up 55%, deposits up 72% but income is flat and NPA's are significantly up.

41 Oriental (formerly Delphis) [1.37 billion] Losses continue to eat into assets. Growth in income finally faster than growth in expenses but not enough to reverse wipe out of gains in the 1st half of the year as the bank moves further away from profitability and drops behind Paramount in size.

42 Dubai [1.22 billion] One of the first banks to recognize the potential of having a branch in the Eastleigh area now finds itself fighting with new entrants (giants Barclays and KCB) invading the area. Assets up 5%, loans up 12%, deposits up 15%, but NPA up 130% from a year ago.

43 City Finance [0.53 billion] Smallest bank with deposits up 34% (to 130 million), but income down 31% and NPA up 40% from a year ago.

Other institutions
Would be ranked 27 - Family Finance [4.47 billion in assets] Almost as fast growing as Equity with a similarly ambitious expansion plan, but was not able to become a bank since their planned conversion was put on hold by Central Bank. A share capital share of 390 million is more than other existing banks, but new banks are expected to be stronger and so the society went for a controversial private placement which was under-subscribed in November 2006. Assets and profits are up 40% from a year ago while deposits are up 50%.

new bank - Gulf African Will be the first 100% Shariah bank in Kenya

Banking & Financial Briefs

New cards
- I&M Classic. Cardholders can transfer from their other credit cards and pay the balance off at zero interest rate.
- KCB has launched a new MasterCard in partnership with Serena hotels

New children accounts
Standard Chartered has launched safari junior and Imperial has launched marble junior cards as they enter a market dominated populated by Co-op and Barclays banks.

New bank awards
Market Intelligence has announced that a banking industry awards gala will be held to be held on June 7.

New MD
Mr. Frank Ireri is the new managing director at Hosuing Finance Company of Kenya (HFCK).

Bright future for NBK?
National Bank of Kenya still has a 4.3 billion shilling deficit which means it can't pay dividends despite its recent profitability. However the Government has plans to wipe out the deficit by settling 16.6 billion worth of past government-initiated advances during this 2006–07 financial year as part of the bank restructuring & privatization project.

Cartel?
On Wednesday, petrol prices went up at most Nairobi stations by between 2/= and 3/= per lire at most stations ina tandem. Compare this to the banking industry where two banks can charge customers from zero to 2,000 for the same service.

Kengen shocker?
The Sunday Standard editorial blames stockbrokers for last minute rush of Kengen applications - challenging that they churned investors funds and only placed orders at the last minute. I went to buy shares in the middle of the period and on the last two days to to correct errors – and IMHO there was the same volume of people each day. I however disagree with Standard argument that those who applied earlier should be given allotment preference. Everyone should be treated equally during the IPO period.

How much is enough?
BOC announced preliminary results showing that 73.53% of Carbacid shareholders have accpted their takeover offer.

Bank Brief’s

Stanbic offer to buy NBK
According to the East African, Standard Bank of South Africa has offered to buy the 48% of National Bank of Kenya that is owned by the National Social Security Fund. Stanbic is Kenya’s 13th largest bank with assets of $167 million while NBK is the 6th largest, with assets of $423 million.

Bank liquidation
The Central Bank’s Deposit Protection Fund will sell furniture, computers, office equipment, safes and motor vehicles owned by the former Daima Bank on September 16th. They are currently available for viewing at Utalii house, Nairobi, on weekdays.

Free gift
Anyone who performs a western union money transfer transaction at the Nation Centre branch of Diamond Trust bank between September 9th to 24th will receive a free gift.

Name change season
KCB’s savings and loan arm will now be known as S&L – the mortgage company, “where great investments begin.” Two months ago, National Industrial Credit Bank formally changed its name to NIC Bank.

Hollywood notices Kenya
The Hollywood Reporter, writes about a revival in movie-going in Kenya with the opening of four new cinemas.

MEGA Plan to buy Parastatals

The recently relaunched ethnic caucus, Mega, will bid to purchase parastatals when the privatisation process kicks off.

Mega's bank of choice Equity Bank, MD James Mwangi has told his staff that they plan to buy National Bank of Kenya (NBK).

Lee Njiru wrote a very harsh critique of the group, warning the Meru and the Embu, not to get taken for a ride.

Banking News

ADB
The New head of the African Development bank ADB will be elected on 22. This was after USA and France combined to scuttle Nigeria’s bid for the presidency - according to the Business Day (SA) newspaper. Donors threw their weight behind the Rwandan candidate, Donald Kaberuka. Kaberuka met the criteria on total votes polled but did not meet the regional vote percentage required, while Bisi Ogunjobi, the Nigerian candidate, likewise met the criteria on regional votes but missed that of the total votes polled. According to the East African (Kenya), most countries are determined that the president should not be from a French speaking country.

KCB
- Kenya Commercial Bank will begin offering Western Union services at all branches soon.

EIB
The European Investment Bank (EIB) has opened the first of three first regional office in Sub-Saharan Africa in Nairobi – to cover Central And East Africa.

NBK
National Bank of Kenya is carrying out a retrenchment package that will cost over 80 million shillings ($1m). It is being done in three phases: employees who are over 50 years, followed by non-performing staff. After that it will be voluntary retirement for anyone wishing to leave the Bank.

Executive Changes
- NIC Bank has a new Managing Director James Macharia.

- Robert Barry, the CFC Group MD has resigned for personal reasons.

- Mr Albert Ruturi, the Chief operating officer at KCB is retiring. The Bank, which is searching for a deputy CEO, has placed an advertisement in the Economist magazine, leading to the possibility that a non-Kenyan will be picked.

National Bank AGM

I missed the best AGM of the year, so far. I wish I had the courage to buy NBK shares.

- The Government has confirmed in writing it will make this payment," the auditors told skeptical shareholders during the bank’s annual general meeting held yesterday.
- The bank’s management was also at pains to control shareholders’ anger over reports that it will not payout dividend.
- "We are not interested in the glossiness of this book (financial statements. All we want is the information contained in it"

Directors to resign at KCB and NBK

According to the Daily Nation, government-appointed directors at National Bank of Kenya and Kenya Commercial Bank
will be replaced by professional and independent directors at the Banks AGMs on June 3 and 17 respectively, both of which will be held at KICC.

National Bank of Kenya

The oft-rumoured about Bank launched a new slogan yesterday, and are now - “the bank where you belong.” In addition, Finance Minister Mwiraria, in his capacity as main shareholder, announced further plans to restructure the bank. At the urging of the World Bank, banks (incl. NBK with Kshs. 17 billion) will transfer all their bad debts (non-performing loans) at a fraction of their value to a new bad debts agency that will then collect future the payments – thereby clearing up the bad debt problem off a bank’s books. However, one problem is that until Kenya’s judiciary is fully straightened out, borrowers (with bad loans) can tie up banks (and the new agency) in court in a bid to stave of payment or sale of their assets. Also Banks are loathe to admit that they made bad investments and don’t want to get short-changed when they sell them off. The Minster also indicated that the Government plans to sell off its 24% stake in NBK by December 2005