Bank Review ‘07: Part 1

the bottom 5

The low end of the banking sector showed little growth in loans or deposits – bank sizes are stagnant.

40. City Finance: (last year 42) Estimated assets of 650 million shillings ($9.28 million) and loss of 20 million shillings in 2007. Kenya’s smallest bank was taken over by the Baraka Fund late in the year, and is expected to be recapitalized and turned around from 2008.

39. (41) Dubai: Estimated 1,480 million assets, profit of 10m shillings.
Growth of about 3% this year, but the bank will have achieve a smaller profit than last year. Its niche branch in Eastleigh and foreign remittance product has found increased competition.

38. (40) Oriental: Estimated 1,732m in assets and profit of 200 million. The perennial loss making Oriental bank (formerly BCCI and Delphis) was recapitalized and is on track for a profit this year following a payment from the Governments’ financial restructuring of Miwani Sugar company which owed the bank a significant debt.

37. (39) Paramount Universal : Estimated 2,258 billion and profit of 45 million. Growth in assets, deposits, and loans flat this year but at least is profitable.

36. (37) Transnational: Estimated 3.03 billion ($43 million) in assets, and 90 million ($1.3m) in profit for 2007. A quiet year for the bank which introduced a Fanikisha product for customers to save money and buy IPO shares on the NSE

Bank story of the week

Which way Equity?: It’s rare to see two sides of a story from the same editorial team – but it has happened on the controversial shielding of Equity Bank’s new shareholders with the Nation newspaper editorial defending the exemption granted by the Finance Minister, after the influential Business Daily editorial (sister newspaper in the Nation Media Group) had strongly opposed the same.

Wikileaks: Charterhouse

Charterhouse revealed
Fresh off the kroll reports, Wikileaks moves on to another Kenyan financial saga - uncovering secrets of charterhouse bank .

The bank was placed under statutory management in 2006 after a long battle with the central bank governor, finance minister, amid allegations of money laundering and tax evasion that almost brought down Nakumatt supermarket who banked with them and hosted several Charterhouse branches.

Euro needs more marketing
The US Dollar keeps dipping lower, not just against the shilling, but is all over recording lows against the Euro and now achieveing parity with the Canadian dollar (no more cheap buys from Canada).

I feel bad when I travel to another country with my Dollars and they don't go as far as tehy used to, or as if I had carried Euros instead.

While the dollar is laid low, there is no other currency stepping up to grab its space. The pound is a colonial relic and the yen is too far & exotic.

The Euro needs to step up and lobby to become the currency of choice for hotels, shops, forex bureaus, Kenya airways, Somali & Sudanese businessmen, companies and most important the Kenya government

Family Bank gets cheques
After applying for a waiver (and getting it), Family Bank finally is now fully fledged with cheque books for customers and access to the Central Bank clearing house. This meshes will with their growth plans – as a recent report found they had the highest new account growth among all banks last year.

IPO savings loan
From Transnational Bank, comes the Fanikisha enabling people to save money and buy IPO shares on the NSE – which TNBL will finance up to 2 ½ times what you have saved. The account is aimed at Kenyans abroad – but my question is with the fractional IPO applications yielded (1/4 or 1/3 of shares paid for) what gain is there in taking a loan for an IPO?

Story con or cover up?
KTN had a story this week about the Tesco supermarkets (local chain – not UK-related) who just ended their Uchumi franchise partnership. KTN said they had seen documents showing that Tesco was insolvent with negative share capital, numerous bounced cheques, rent arrears of many months at its stores, and suppliers reclaiming their merchandise. The story ended there with not follow up in the Standard (KTN sister paper) or any other newspaper. So was it hushed up, or was it a case of more mud slinging in the supermarket wars?

Share certificates, banks, jobs

Share Certificates



One quirk about the Kengen IPO is that investors have the option of receiving actual (paper) share certificates. This goes against the spirit or the CDS system and the Central Depositories Act (2000) which in essence eliminated share certificates as cumbersome, slow to trade, could be lost/damaged etc. Earlier, officials had also said that IPO’s like Kengen would be offered only via the CDS system.

Who is a typical Kenyan investor?
However, this move enables traditional investors, from outside Nairobi who don’t have access to computers or who are unfamiliar with the CDS systems & probably haven’t immobilized their shares to take part in the Kengen IPO.

The typical Kenyan investor is still a buy and hold investor who does not trade/sell shares often and instead relies on dividend payments from shares to supplement their income. At the start of the IPO period, investors had opened just over 100,000 CDS accounts - yet some companies have many more owners. E.g. Kenya Airways alone has over 80,000 individual shareholders.

Bank muscle
Another group who has benefited from the option to issue share certificates is the banking sector. As of today Barclays, CFC, Consolidated, Diamond Trust, Equity, Family Finance, I&M, KCB, Postbank, Southern Credit banks and numerous other corporations (for employees) and cooperatives (for members) have all lined up to offer financing towards the purchase of Kengen shares. Most of them will hold the shares as security until the borrowers finish paying off these loans. This would be more difficult to enforce without actual share certificates.

The IPO will also bring banks a few million shilling in the form of banker’s cheques that must be obtained to pay for shares and can range from 100 to 1,500 shillings each. However some account holders at banks such as NIC (MOVE), Stanchart and Diamond Trust already enjoy the privilege of having a free banker’s cheque each month from their flat fee accounts.

What Else?
- Other IPO’s expected in 2006 include Suntra, Wananchi, Adopt-a-light, Equity Bank and Sarova Hotels.
- With thousands of Kenya’s beginning the process of opening CDS accounts this week, customer service for regular stock-broking customers is almost non-existent and likewise trading activities at the stock exchange will be at a reduced level.
- Barclays Bank registrars continue to experience delays in the immobilization of share delays immobilization of share e.g. KQ, EABL.

More 2005 Banks
National Bank of Kenya (bank No. 5 in asset size) both loans and customer deposits increased by 2 billion to 24b and 25.2b respectively. Commission & fee income increased from 840 million to 935m and the bank will present a pre-tax profit of 859m, but no dividends, to shareholders on May 19th at the Bomas of Kenya.

Commercial Bank of Africa (No. 7) bought 1/3 of AIG Kenya insurance.

Diamond Trust (No. 12) Will introduce visa cards, and by extension, will enable all visa card holders to access cash from pesa point ATM's.

Imperial Bank (No. 16) deposits increased from 4.4 billion to 5.7b. increased cash position from 618 million to 2,089m but fee & commission income was flat.

Habib (Bank no. 22) increased deposits in government securities by 600 million and customer deposits by 230m. Fee and commission income reduced slightly to 54 m.

Development Bank of Kenya (No. 34) loans increased from 647 million to 1,073m.

Transnational Bank (No. 36)pre-tax profit returned to a more conventional 59 million, down from their record 1.03 billion profit in 2004. Loans increased from 876m to 1,201m while deposits decreased from 1.2b to 900m.

City Finance (No. 41) Kenya’ smallest, is the only bank so far to record a loss in 2005. The bank went from a 2004 profit of 11 million to a loss of 47m last year, largely due to increased provision for bad debts.

Opportunities

Communications:
Telkom Kenya is seeking distributors for its wireless services. Applicants must have 5 million in working capital and already operate a distributorship or retail outlet in Nairobi. Apply by March 31

HousingThe Ministry of Housing will 50 flats at Jogoo Road (Phase II) and 16 flats in Kileleshwa. Apply by April 21

As part of the GJLOS program, provide an IP-based telephone system for the Kenya Anti Corruption Authority. Apply though KPMG by April 20.

Jobs
CEO at ICPAK. Apply to esd@kpmg.co.ke by March 31

Sales account managers at interactive media services. applicants must have at least 5 years, sales experience (2 in telecom sector), business degree and a marketing qualification. Apply to jobs@ims.co.ke by 24 March.

At the national oil corporation of kenya
- Credit Controller
- Geophysicist
- Programs, Logistics and Procurement Analyst
- IT Coordinator
- Chemical Engineer (Petrol-Chemistry)
Apply through their site by April 3.

At nitin pandya & company certified public accountants
- Practice manager (nairobi)
- Audit supervisors (nairobi and mombasa)
Apply to Milan@questkenya.com

Sub-editors at the Standard Group. Apply to hrd@eastandard.net by March 28

Banks named

From Haliburton through Kenya: Africa Confidential claims that illegal payments for Nigeria' $10 billion gas export plant, built by Halliburton, Technip, Snamprogetti and the Japanese Gas Corporation appear to have been channeled through Kenya's Transnational Bank and on to major international financial institutions, such as Bankers Trust, Citicorp and Deutsche Bank, who have all been asked to help the investigators with their enquiries.

Corporate Brief's this Week

Banking Bill dead?
The Banking (Amendment) Bill 2004 which has been deferred, may be doomed, in that politicians have taken the rhetoric down to imperialist (foreign banks destroying indigenous business) and tribal (banks are persecuting Central Province mainly) levels. After Finance Minister David Mwiraria heard the views of Members, he decided to defer debate to a later day. The House was unanimous it would not be in the interest of the nation for banks to retain the "illegal" interest they have been charging Kenyans. MP’s want the ‘in duplum’ rule to be back-dated to 1990, while the President wants it to begin in 2004. This will wipe out entire bank portfolios and cause several of them to shut down.

Mystery Solved
2004 Profit at Transnational Bank jumped to an astounding 1 billion shillings from 100 million in 2003. This came about from the sale of Alico Insurance to Heritage AII earlier in the year – and Transnational Holdings owned 1/3 of Alico netting a profit of 1.034 billion from the sale.

Name Change
Firestone Ltd shareholders approved a name change and the company will now operate as "Sameer Africa Ltd." Does this mean new business ventures?

Fibre Nairobi
Walking around Nairobi, you may have tripped or almost fallen into a ditch that cuts across the pavement. It's just Kenya Data Networks (a Sameer company) continuing to build its fiber-optic network around Nairobi.

Missing taxes
Nakumatt stores are being investigated for tax evasion, according to a Minister in Parliament.

No Sugar
A sugar shortage is taking hold around Kenya. Meanwhile all Kenyan sugar factories are shut for annual maintenance and imported sugar is rotting at the Mombasa port as traders argue with KRA over how much duty is to be paid. Shoppers are being limited to 1 or 2 kg per person, per day.

You don't have to swim
Kenya Ferry Services assures Kenyans that their ferries crossing Likoni (Mombasa) never capsize and are 100% buoyant despite the frequent mechanical breakdowns.

Fare increase
Kenya Railways have announced that they will raise their freight costs by 20% and passenger fares by 30% effective May 2005. However the move has been opposed by the Kenya Association of Manufacturer's and other groups who say that the poor service that KR currently provides does not warrant an increase in fares.

Calendar
April 21: East African Cable AGM at Holiday Inn, Westlands
April 26: (AGM) British American Tobacco AGM
April 29: (TPS) Serena AGM

Bank Round-Up

National Bank of Kenya
NBK’s net profit went down from 404 million to 383 million, mainly as a result of increased provision for bad debts - the bank provided 1.7 billion, up from 1.6 billion in 2003. The Bank has so far provided for 12 billion of its 17 billion bad debts portfolio.

The main component of their profit was an increase in foreign exchange income from 92 to 274 million. During the year loans to customers increased from 21 to 24 billion, and customer deposits increased from 20 to 22 billion. It is still not an efficient Bank – given that with assets of 30 billion, it only returned a profit of 300 million – and still can’t pay a divided as it must re-coup its losses of previous years first. The Bank received capital from the Government of 500 million, but has zero shillings in government securities. Shares in NBK are trading at 19 shillings (in the last year, low has been 13, & high has been 36 shillings) on the Nairobi Stock Exchange.

Transnational Bank
The most unusual result comes from TNBL where after tax profit increased 10X from 118 million to 1.04 billion in 2004. Customer deposit s more than doubled, from 523 million to 1.2 billion, while loans increased from 685 to 876 million. The staggering profit comes from other income of 837 million during the year - probably a write back as someone paid of a big political loan that had been written off.

Fina Bank
Fina is the only major bank, so far, to declare a loss for the year ended (42 million, down from a 75 million profit in 2003). The main component of the loss was an increase provision for bad debts from 88 to 205 million. Also staff costs and operating expenses increased by 33 and 50% respectively (both at about 130 m), while deposits and loans remained relatively unchanged at 5 and 2.6 billion respectively.

Stanbic
Standard Bank of South Africa, which was the only major bank to declare a loss in 2003 (104 million), turned things round in 2004 to return a profit of 118 million. It appears to have been saddled with some unprofitable loans in 2003, because in 2004, interest income increased from 183 to 368 million. Also it reduced is investment in government from 3.1 to 1 billion during the year, and shifted the funds to customer loans, which went up from 4 to 7 billion at the end of 2004; however deposits remained flat at 8 billion.

Development Bank of Kenya
DBK which is going to merge with HFCK, had a reduced profit during the year of 65 million, down from 92 million in 2003. Customer deposits decreased from 613 to 469 million. The bank which is supposed to be a development finance institution, doubled its investment in government securities from 646 million to 1.2 billion