Savings Accounts that Save Part II

Commercial Bank of Africa (CBA) recently infomed their customers about changes in their savings accounts. They quoted market & customer research, and recent amendments to the banking act which required that banks are to pay interest on savings accounts as long as customers maintain the account minimums and banks are not to levy charges on saving accounts, or fixed deposit.

CBA resolves this matter, by giving their savings account customers two options to convert their accounts into either
- A low cost account transactions account (called Freedom) that charges 200 shillings ($2.67) per month but comes with unlimited ATM withdrawals and a waiver of first year of a credit card fee.
or
- A Savings account (called Nufaika) that has a minimum balance of 3,000 ($40), pays interest semi-annually and also comes with the offer of a personal loan amount bases on 75% of savings. It has not fees, no bank charges, but interest will only be paid on balances above 30,000 shillings ($400)

And while CBA is not known to be a low cost bank, they will by default, move all their savings accounts holders into the Freedom a/c (i.e. (low balance, no interest paid out, but steady monthly income for bank), unless the customers opt for the Nufaika a/c option.

CBA is being upfront about the banking act, something most banks are not being forthright with their customers about. Banks have a variety of charges levied against savings accounts including withdrawal of cash over the counter or by ATM, a fee when the a/c balance drops below the ‘minimum’, interim statement (per page), new ATM card or replacement, and closure of account. All this means that the banks profit from charges while depositors have holes through which their savings leak out instead of grow

bank charges are savings holes
The relevant clause on Savings Accounts in the Kenya Banking Act (PDF),is 16 (A) which states:

No institution shall impose any form of charges on a savings, seven day call or fixed deposits account. and an institution shall, in respect of a savings account, pay interest accruing, to that account as long as the minimum balance is maintained.

CBA is complying now, but its’ clear that banks have been flouting the act for some years now, despite repeated pronouncements for them to comply with the savings rules.

The Central Bank Governor has also made futile calls for banks to increase their deposit payment rates to match their lending rates, or vice versa - lower their lending rates (12% to 25% to be in line with the low rates they pay on deposits (2-7%)

What savings account charges (if any) are levied at your Bank?

Co-Op IPO Aftermath

A formal statement is out today after Monday's press conference where the bank’s management revealed that through their 2008 IPO, Co-op Bank had raised Kshs. 5.4 billion (~$77 million) but short of a revised target of Kshs 6.7 billion as 66,576 shareholders bought 546 million shares. The Business Dailyreports the shares will be allocated 60% to individual investors (340.5 million shares) , 30% to institutions (171 m shares ) and staff will get 9% (52.6 m shares)

Capital raising: the offer was not underwritten (by D&B winner - best lead transaction advisor and best investment bank), but despite the shortfall, what was raised should be enough for a few years. Co-op’s capital adequacy goes from 9% to about 18%, which is not bad [10 billion would have taken to this to 22%]

Other banks that have been reported to have engaged in recent private capital raising include K-Rep and Southern Credit while others who may need to tap shareholders next year could Chase, CBA, CFC Stanbic and even KCB (for the third time in five years?)

Glass Half Full: Though Co-op had initially set out to raise Kshs 10 billion, their listing came at a tough time and was not received as enthusiastically as past IPO’s. Still it had some positives but came in a tough market before the target was revised down, but has some positives

- For the bank: 66,000 shareholders is a manageable register , and since they did a lot of the placement and receiving work in house, the IPO was not as costly as others (budgeted at Kshs. 248 million)
- For new shareholders: no refunds to queue for, and for once a 100% allocation
- For other serious investors, a brief return to sanity as the IPO speculators with their borrowed funds kept away – Co-op was the fall guy that injected some reality back into IPO process and share investments.

2009 IPO’s: Next year could see the entry of Nakumatt supermarkets, bread maker a DPL and others from the private sector.

From the public sector (Government side) comes a series of planned privatizations a few of which could be IPO candidates to assist the Government in fund-raising:

Top of my my wish list is Kenya Pipeline, whose much improved governance saw a consortium of banks line up this month to offer the company funds for expansion (a few years ago KPC was using dubious financial intermediaries) and Kenya Wine Agencies. In addition, more shares of Kengen East African Portland Cement Company and National Bank will be sold to the public.

Other non-IPO candidates will be targeted at strategic partners [for Kenya Ports Authority- and TEAMS (submarine cable)] while private investors may be sought to invest in the sugar companies [Chemelil, Sony, Nzoia, Miwani, Muhoroni] hotels of Kenya Tourism Development Corporation, banks [Consolidated Bank, Development Bank of Kenya] and food processors [Kenya Meat Commission, New Kenya Co-operative Creameries]

Bank Tales

(4) The Nairobi Star newspaper reports today that the ravenous Libyans are going to buy Equatorial Commercial Bank from Naushad Merali and other shareholders.

(3) T24 Rules: over a week ago KCB converted to the Temenos T24 banking system with some customers experiencing hitches - and next weekend it will be the turn of CBA to do the same.

(2) (Nairumor II) Minister(s) are itching to get licenses to open their own banks (hopefully not a return to the days of political banks)

(1) ( Nairumor I) that the Co-Operative Bank IPO will not be sold by all stockbrokers. Co-Op bank will do investor registration and most of the processing at their own (52) bank branches, with assistance from only a few brokers. That could be bad & painful news for stockbrokers as the low volumes traded and the depressed NSE this year have meant less than projected commissions & income.

Bank Safety Net

and other brief’s

Kenya’s deposit protection fund results are also out. They fund had about Kshs. 18 billion ($240 million) invested in government securities to protect depositors in case one of Kenya’s 45 banks collapses – and pay each account holder up to Kshs. 100,000 (~$1,333). The fund now covers account holders in the two new Shariah banks who were excluded a year ago

Lending crunch? wooing customers
- CFC/Stanbic - win out of the blue; open an account with Kshs. 10,000 and win one of 5 cruises, flat screen TV, digcam, ipods, satellite TV decoders (with subscription)
- Stanchart - take unsecured loan of Kshs. 750,000 or more and get a DVD player
- KCB – spend more than Kshs. 2,500 on your credit cards and you may win a DVD, TV, mobile phones or a holiday

Going regional Equity Bank hiring staff to work in South Sudan, while East African Development Bank is hiring staff to work in Rwanda

Mobile payments Old Mutual customers/fund investors can now pay their monthly subscriptions by M-Pesa – Safaricom’s mobile phone money transfer facility. Banks have already a ceded a significant chunk of the local the money transfer business to mobile phone, who are now expanding into investment and utility payment turf of banks.

To Coop or Not?

The big debate now is if the Co-Op Bank IPO should go ahead this month or if it should be postponed. The Chairman of the Nairobi Stock Exchange has issues conflicting statements on the matter but appears to have bowed to the arrangers and the stockbroking community line that it should go ahead.

IPO’s in London and New York are beign deferred as they are unlikely to be warmly taken up, and here, the dearth of IPO's in the pre-Kengen was guided by the sentiment that they would not perform well in the then deflated markets. Even the giant IPO of Safaricom – was postponed till after the 2007 elections.

The timing is just not right, with two collapsed stockbrokers still being sorted out, Safaricom refunds not fully reconciled, and the Diaspora who were so enthusiastic about Safaricom still (i) worried about repercussions of the US financial markets turmoil (ii) real estate and (iii) feeling suckered by Safaricom's post-IPO performance which they heavily invested in.

Though the funds raised are targeted towards, mortgage finance, ICT and branch expansion, the Co-Op IPO should be postponed to at least next year. It withstood the 1998 Nairobi bomb blast and has turned round a Kshs. 3 billion loss to a similar profit in 6 years and a few more months won't make a difference. But as a fall guy of Safcom, I’ll revert to my IPO bypass plan when the Co-op IPO arrives.

Need for Capital; Co-op is a fast growing bank with a retail and branch base like KCB and Equity that requires capital to be shored up. The two banks that were most in need of regulatory capital - KCB and Housing Finance have already had rights issues in 2008, and other shareholders should prepare for the same at CFCStanbic, Prime, CBA, among other smaller banks.

NSE/CMA to note; In the wake of Crown Berger and Portland Cement share collapses, it should be noted that irregular share trades happen - even to Google - but the prices were re-adjusted and trades made at erroneous prices were then canceled.

Opportunities

Barclays graduate program: The Barclays Graduate Emerging Managers (GEM) is open

US Visa The DV 2010 diversity visa (US green card) lottery kicks off today and runs till December 1

TED Global 2009: Registration for TED Global 2009 at Oxford is open.

Bank charges survey

The Central Bank and FSD Kenya released a report on bank charges – a summarized version of which is now available from the CBK site.

It is an interesting report based on a survey of several hundred bank customers. CBK used to publish bank charges every quarter in the newspapers from about 2003 to 2005, which were not clearly understood by the public then they appear to have decided to used FSD Kenya to do a more comprehensive analysis.

The report highlights a problem, which many bank customers face. They start a relationship with a bank for one reason, but without knowing all the charges for various others banks services. E.g. it shows that you may take a loan at one bank because of the low interest rates, but pay a lot more to service the loan, or you may open an account because of the low opening balance or free salary processing, but find it very expensive to do anything else.

Charges form an important part of bank income (the top 5 banks earnings based on commissions were Oriental, EABS, Baroda, Family Finance and Equity who all earned over 50% of their 2007 income from non-interest earnings). In terms of bank charges, Equity Bank has been very popular for two reasons

(i) They came on to the banking scenes four years ago without any legacy charges; while other banks used to adjust their charges, based on what other banks were charging, Equity were able to set their own charges
(ii) Many of their services (with low charges) are offered to customers and non-customers alike – like 50-shilling banker’s cheques.

I hope the report, and others from FSD Kenya will be republished in a daily newspaper for the millions of bank customers who don’t have Internet access to review (this is the case in Uganda)

CFC-Stanbic Bank EGM: merger approved

An extraordinary general meeting to approve the CFC – Stanbic merger was held on November 12 at the Intercontinental Hotel

Deal: Stanbic is the largest bank in Africa with a presence in 18 Africa countries and 21 others around the world (including Bank of America in Argentina which they just bought). It has asset of $140 billion and 43,000 employees – and by combining their (relatively) small Kenyan operation with CFC, they will become the 4th largest bank in Kenya.

Approval got: CMA, CBK, monopolies commission
Approval to be got: shareholders, SA reserve bank, NSE
Deal should be complete in about a month

The meeting was led by CFC Chairman Charles Njonjo. Fellow director J. Kierini introduced the board and, other dignitaries present who including D. Ndonye (Deloitte), Jimnah Mbaru, Kaplan & Stratton advisers, and Craig Bond and a team from Stanbic include his son who works at Stanbic Kenya.

CFC MD Soundararajan explained rationale for the merger - synergies, very similar and complementary customers, regional opportunities, and enhanced capital adequacy. Customers will get a one stop shop for all their business, staff get to work in a bigger bank with more careers opportunities (and all employees are assured of retaining their jobs).

Shareholder questions
Dilution of minority shareholding? : Management said they are getting into a bigger entity
Are major shareholders bailing? : Gambit will get paid in new shares but also about 5.8 billion shillings. MD answered that shareholders are staying and the company is not going anywhere
Mgmt. afraid to say that CFC being ; Management says it’s a merger, as it is not a sale, new entity will have 40% CFC and 60% Stanbic shareholders
if CFC is growing well, why sell? Need for capital is important. MD said that he needs about $100 million, while new entity will have around $60 – 70 million. Merger will enhance the company’s growth plans
Due diligence on Stanbic? ; Done and they shared strategies which each other to see if they were on the same path. Also board member (and lawyer) Fred Ojiambo denied that a 25 billion shilling lawsuit had eroded the value of Stanbic (K) saying that claim had no firm base
Why no bonus shares instead of selling out?: MD said CFC had in the past given the largest bonus divided in the history of NSE 21 for 1 and the board will consider that at the right time

This is it: The historic moment passed in a flash as the Chairman proposed that all six resolutions be passed in a single vote since they were all interdependent.

The resolutions passed in a single vote;
- Created 117 million new shares to accommodate Stanbic
- Empowered the directors to allot shares to Stanbic
- Changed the name of the company to CFC Stanbic Holdings
- Transferred the bank business (assets, liabilities, employees, creditors etc.) to Stanbic
- Amended the new articles of association
- Changed the business of the company from a bank to holding company

Now CFC Stanbic holding co to remain listed on the NSE while CFC Stanbic Bank will be a 100% owned subsidiary

Other speakers

Craig Bond: The Head of Stanbic Africa, said they got lucky in Kenya as the first bank they identified turned out to be the right partner offering great synergies; in Nigeria they have looked at 6 banks which have not panned out. He said that Stanbic which intends to be the ‘best emerging markets bank’ in the world had identified 3 countries that they intended to dominate in Africa – SA, Nigeria and Kenya where they intend to break into the top 2 (not remain #4), by rapidly expand branches in 2008

Commenting on the largest bank in the world ICBC buying 20% of Stanbic (it’s 70% owned by government of china) - he said China is coming to Africa in a big way for her resources, and it offered Stanbic cheap money with the promise to match them $ for $ in any investment in Africa

NSE Chairman Jimnah Mbaru said he was proud that the deal happened under his watch and confirmed that he expected NSE to approve the deal by end of the week. He looked forward to having a big institution with the capital to enable economy to meet growth goals in terms of resources. And finally called out to family owned companies to see what could happen if they transform themselves into institutions as the late Mr. Jani had done with his firm which was now merging with Stanbic.

There were further tributes to the late Mr. Jani who created the company in 1951 with a vision for into to partner with an international power house, MD Soundararajan and directors Njonjo and Kierieni for making the deal happen

Humorous moment: Chairman Charles Njonjo was sad that there were only ‘5’ shareholders present when the meeting started, but got happy as the numbers had reached about 100 by the time it ended. However it didn’t really matter as he had 45% proxies from Africa Liaison and Gambit while fellow director Kierieni had 30%.

Goodies: souvenir pen, umbrella, big lunch box with little food from intercontinental – (fanta, cake, apple, and bit of goat, chicken and sausage)

other news

Barclays launched tranche one of its bond - 1 billion shillings, maturing in November 2014.

Rwanda and Burundi to join the East Africa Development Bank once they subscribed via share capital

Equity Bank extends banking hours to almost match office hours; 8 a.m. – 4:30 p.m. on weekdays and 8 a.m. – Noon on Saturday

The National Housing Corporation is offering investors loans to build rural and peri-urban homes. The maximum loan amount is only 1.5 million shillings – and it’s advanced at 13% over up to 10 years

Sasanet investors want to notify partners, bankers, and other companies (including safaricom) that the company had not refunded investors their funds.

Urban transport gets more expensive as all the major transporters Citi hoppa, KBS and matatu owners start a blanket 10 shilling per ride fare hike to counter rising fuel prices


opportunities

Celtel territory sales executives (17). D/l is 16/11

IT manager at EA Cables. apply thru deloitte esd@deloitte.co.ke

Jamii telecommunications: account managers (3). d/l is 16/11

KBR various jobs in Iraq, Afghanistan pr Kuwait. But …

Madison: finance manager, senior investments manager

Microsoft: public sector lead account manager - public sector & education solution sales professional (business productivity), infrastructure consultant, MBA graduate

Head of ICT services - Standard Group. d/l is 13/11

Chief operating officer at Renaissance capital. apply to coo@rencap.com by 19/11

What about Shariah depositors?

A glance at the latest report from the deposit protection fund, omits two Shariah banks licensed this year - (Gulf African and Family Community) from the list of institutions whose deposits are protected by the deposit protection fund (DPF)

A further reading of Islamic banking indicates that such banks guarantee depositors funds - but then don't all banks do that?

Reprieve for small banks

Opposition MP’s in Parliament yesterday appeared to shoot down a proposal by the Government requiring commercial banks to have a minimum share capital of 1 billion shillings ($14m) by 2010 – up from the current minimum of 250 million shillings.

This has been seen as likely to cause several smaller banks to merge or be absorbed into larger entities. So for at least, another year, the barriers to entry to the banking sector remain low.

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.

Savings accounts that save

New changes to banking act forbid banks' from imposing charges on savings account holders as long as they maintain the minimum balance. This will promote a culture of savings, which is important even as real savings rates are negative.

(Here's a snapshot (PDF) of some of these charges from 2 years ago

This week, I closed a savings account because, when I got my (half-yearly) statement, I realized that they had been charging me 200 shillings ($2.9) a month. Even as I opened a different savings account within the same bank, the account rep. said, despite my protests, that the new savings account would attract a 25-shilling per month fee. I also got dinged 300 shillings for transferring the account.

No bank has yet come out and declared how they would abide by the new rules, but it takes long to right a ship and it will probably take a few months to rework their savings products with new brochures, IT codes & account parameters.

Of the last few years savings accounts have become hybrid account that have ATM cards, visa cards, electronic banking & SMS access etc. - all of which banks could extract a fee for the extra services to account holders.

To comply with the changes, banks are likely to come out with plain, no frills savings accounts. They will adjust the minimum fee appropriately but have no more ATM cards or extras - just money sitting in the bank earning intrest, and not reduced by bank charges.

Banking law amended in 2007

The banking amendment act (2006) and finance act (2006) were gazetted in January 2007. Some changes that will affect the banking system in a busy year, in addition to possible merger activity, include;

- Ban on bank charges within savings accounts. In fact banks must pay interest as long as the account minimums are maintained
- Section 44A (in duplum rule) – banks can only recover principal amount lent, interest to an amount not exceeding principal, and recovery expenses from bad debts. (Fortunately for banks this will not be applied retroactively)
- CBK gets a deputy governor appointed by the president
- CBK also gets to vet the professional and moral suitability of owners (of more than 5%), directors, and senior managers of banks
- All banks must get permission from the finance minister to open branches or establish subsidiaries outside Kenya
- Banks are allowed to invest in real estate. They can also hold land for as long as it takes to realize/recover debt
- Allows sharing of non performing assets information with the Central bank, others banks and credit reference bureaus

Credit Reference Kenya

The Finance Bill expected to be passed early in 2007 will require banks to share information on non-performing loans and bad debts through credit reference bureaus. Previously.