Inuka for SME’s from Kenya Bankers

During a Kenya Bankers’ CEO chat on Friday, it was revealed that local banks would, through the Kenyan Bankers Association (KBA), soon launch an Inuka initiative for small and medium enterprises (SME’s).

Accelerated lending to SME’s was one of the pledges that the banks had set out to accomplish ahead of the passing of the interest rate capping bill of 2016 by Kenya’s parliament as it edged closer to becoming a law.  The banks committed to set aside  SME support facilities at all banks that would channel Kshs 30 billion to SME’s and a third of that would go to SME’s owned by women and youth. These firms would borrow at a concessionary rate not exceeding 14.5% and banks would progressively report, each quarter, on their allocations, SME loan uptake, and loan performance.

But the interest rate cap did pass, which resulted in SME’s borrowing at the same level of interest that the banks had pledged. Other commitments that the banks made and which they  have fulfilled include ending the practice of account oolong charges, and they also  rolled out the KBA cost of credit web site and calculator to enable bank customers to properly assess the cost of loans offered, with the impact of bank fees, before they commit to borrow any money.

After the chat with I&M Bank CEO, two more KBA CEO chats are scheduled in that next few weeks with the CEO’s of Dubai Islamic Bank Kenya on 29th September and of Family Bank on 6th October.

Cement, Sugar, Governments contribute to Bad Debts in 2017

In a press conference this week the Central Bank of Kenya (CBK) governor spoke about non-performing assets i.e bad debts and highlighted manufacturing, real estate and, trade sectors.

This comes after the half-year 2017 bankers credit survey released by the CBK noted that the ratio of gross non-performing loans to gross loans increased from 9.5 percent in March 2017 to 9.91 percent in June 2017. The increase in the gross non-performing loans was mainly attributable to a challenging business environment

  • Non-Performing Loans: Generally, the commercial banks expect an increase in the levels of NPLs in the third quarter of 2017 with 42 percent of the respondents indicating so. This expected rise in NPLs is attributed to the industry’s perception of increased political risk in light of the upcoming general elections.
  • Credit Recovery Efforts: The banks expect to tighten their credit recovery efforts in eight out of the eleven sectors.

The Governor said that in manufacturing, the bulk of the Kshs 5 billion of bad debts increase could be attributed to a sugar company, two cement companies, and a plastics firm, while  In real estate, Kshs 3.9 billion was due to two projects – one a golf course, and the other was a housing one. But he added that, for all of these projects, the banks that had financed them were working to resolve the loan performance.

On trade, he said that Kshs 2.8 billion increase of bad debt loans was spread across many banks and that a lot of it relates to delayed payments by government – both national and county ones – to suppliers.

Septuagenarians and Auditor Changes on Kenyan Boards

Last week brought news that Co-Operative Bank had a new Chairman – John Murugu, who has previously worked at Treasury and CBK, is to take over as chairman on October 1, 2017, replacing Stanley Muchiri who is retiring after attaining the mandatory age of 70. 

The age of seventy as a cap for directors to serve on corporate boards has been paid lip service, until recently. But this year has seen prominent septuagenarians (70+ years) exit from financial firm boards including Peter Munga as Chairman at Equity Bank Group, Francis Muthaura as Chairman of Britam Holdings and now Mr. Muchiri who joined the board of Cooperative in 1986 and became Chairman in 2002. There could even be one more at Centum Investments with regard to top shareholder and director, Dr. Chris Kirubi who is also a former Chairman of the firm.

Dr. Kirubi was re-elected to the board in 2015, but the Centum AGM next week, where three other directors – Dr. Jim McFie, Henry Njoroge, Imtiaz Khan, all retire from the board, has an oddly-worded resolution – “Director above the age of 70 Years”  Pursuant to paragraph 2.5.1 of the Code of Corporate Governance Practices for Issuers of Securities to the Public 2015, to approve the continuation in office as a Director by Dr. Christopher John Kirubi, who has attained the age of seventy (70) years, until he next comes up for retirement by rotation.

Section 2.5.1 of the Capital Markets Authority (CMA)  Code of Corporate Governance Practices for Issuers of Securities states that it is desirable for board members to retire at the age of seventy years. Other changes in the code which are now been enforced more strictly include:

  • The Board shall rotate independent auditors every six to nine years (this is now  happening at some banks that have had the same auditors for more than a decade),
  • Auditors now narrate in the annual report to shareholders on key audit matters they encountered the company.
  • The status of Independent directors shall be checked annually, and they must not be associated by way of being an advisor to the company, or having a relationship – business or personal, with major shareholders or have cross-directorships with other directors.
  • A director of a listed company (except a corporate director) shall not hold such position in more than three public listed companies at any one time.
  • Independent directors can’t serve for more than nine years.
  • That a comprehensive independent legal audit is carried out at least once every two years by a legal professional in good standing with the Law Society of Kenya.
  • The Chairperson must be non-executive and not involved in day-to-day running of the business ( e.g. there wide expectations that Michael Joseph would play such a role as Kenya Airways chairman).
  • Publication of director resignations in the newspaper.
  • More engagement with institutional investors and media.

Coca-Cola in Kenya 2017

Last night, Coke studio Africa, the musical show from Coca-Cola had performances by Bebe Cool of Uganda and Falz the Bad Guy of Nigeria. They were amazing performances by top performers and I was fortunate to be at the earlier taping of the show. The production was very impressive to see live, the crowd at the taping was enthralled and it would not be a surprise if the two stars continue to perform together for many years after their first meeting in Nairobi. Coke Studio Africa, now in showing its 2017 edition, has done a lot to introduce musicians from different parts of Africa to new audiences in other parts of the continent – and the rest of the world through the Coke Studio Africa show clips which are available on YouTube and the new songs from each of the seasons that can be downloaded on a Coke Studio Africa app.

Bebe & Falz: Image from Coke Studio Africa

Besides the filming and production of Coke Studio Africa in Nairobi, Coca-Cola has had a busy year in Kenya. In the last few weeks, despite the Kenya election which usually sees a slowdown in corporate activities, they have had two major product launches – one for Minute Maid Pulpy Orange, and another for Coca-Cola Zero Sugar (formerly Coke Zero) which is now available in a wider variety of bottles.

At the same time, the acquisition of Coca-Cola Beverages Africa Proprietary (CCBA) by Coca-Cola was completed – for continues production of Keringet bottled water brand at Molo. CCBA  also bought out Equator Bottlers at Kisumu, the third largest Coca-Cola bottler in Kenya which supplies products in the Western Kenya.

At the same time Centum Investments which owns 27% of Nairobi bottlers, and 53.9% of Almasi Beverages – both bottlers of Coca-Cola products, also moved to increase their stake in Almasi by offering other shareholders Kshs 7 per share. Almasi had Kshs 7.8 billion of sales in 2016, and a pre-tax profit of Kshs 1.05 billion. Alamasi, the second largest bottler in Kenya behind Nairobi bottlers, and according to Centum – accounts for 28% of the volumes sold in 2016, which puts Coca-Cola sales in the country at  ~Kshs 28 billion.

Kenya Tea Trade Monopoly Pricing Rejected

The Competition Authority of Kenya has rejected an application for exemption by the East African Tea Trade Association (EATTA) to set brokerage commission and warehouse prices. EATTA, which operates the weekly Mombasa Tea Auction, had sought to be exempted from the provisions of section 21 and 22 of the Competition Act No. 12 of 2010 (the Act) on some of its activities for an indefinite period.

The rejection was premised on:

  • The setting of broker fees and commissions under the auspices of the EATTA was a hardcore contravention under Section 22 (1) (b) of the Act as it is a form of price fixing;
  • The setting of brokerage fees was beneficial to the brokers with no express benefits to consumers and tea producers;
  • The Kenyan brokerage fees were higher compared to those in Sri Lanka and India and have remained unchanged for a long period of time;
  • Warehousing is an important element in the tea value chain and that fixing of warehouse fees would undermine innovation and improvement of value preposition to customers given that warehousemen will be assured of the minimum fees set by EATTA. This the Authority concluded that it will encourage inefficiencies in warehousing thus impacting on the trade negatively.

However, the Authority allowed, for a period of three (3) years), the trading to be permitted amongst membership.

Extract from the Kenya Gazette

Other

  • Kenya’s largest foreign exchange earner isn’t tea or tourism but diaspora remittances – @coldtusker
  • During tea processing, 4 kilos of green leaf are required to make one kilo of tea – @dailynation
  • Kenya has the largest tea auction in the world with plans for a tea futures market to get predictability for farmers – Stuart – @INTLFCStone