Monthly Archives: April 2009

NIC Bank 2009 AGM

The 2009 annual general meeting (AGM) of NIC Bank took place on Wednesday April 29 at the Kenyatta International Conference Centre Nairobi. (more on the background and recent performance of NIC)

The Chairman JPM Ndegwa (Chairman) led the meeting which began after the Company Secretary making some housekeeping announcements – mentioning lunch would be served afterwards but members should not litter the building as they eat, asked shareholders to switch off their mobile phone (a few still rang during the meeting) and that the bank had a marketing desk where their products would be on display for shareholders to ask questions and could open share accounts

Chairman Performs: The Chairman introduced the board and the management and representatives of S&F Bank of Tanzania who were seated at the side of the dais. He spoke throughout the day in a mix of English and fluent Kiswahili. He began by commenting that the 2008 AGM held at Safari Park Hotel had been quite crowded hence the move to a larger venue (the bank has almost 25,000 shareholders)
Most important was how he controlled the tempo of the meeting, by stating upfront that only relevant questions should be asked and only as related to what was being discussed or voted on at each time. The result was one of the most constructive Q&A segments I have seen, with no frivolous questions asked during the session and the meeting progressing quite rapidly

Financial accounts 2008: the bank ended the year with a profit of Kshs. 1.48 pre-tax billion (~$18.5 million) and significant growth in assets deposit and loans. After the audit partner (Mr. Ndonye from Deloitte & Touche) read out their opinion, there were no questions and the accounts were approved!

Dividend: a final dividend of Kshs 0.25 for a total for the year of Kshs 0.5 was approved by shareholders. The voter elicited a couple of the shareholders to as usual ask for a higher dividend to be paid than the board had recommended. Another shareholder asked that, since the dividend was meager, could they be paid a bonus share? he clearly had not read or listened to the agenda

Directors fees – while you can’t compare the level of disclosure to shareholders at Stanbic (Uganda), the Chairman stated that the total sum paid to non-executive directors was Kshs 5.2 million ($65,000) – in sitting allowance for board & committee meetings. This was actually lower than the 5.36 million paid the year before last year and the results were plain to see. Vote was approved

Auditor Re-elections: the directors recommended that Deloitte continue in the accounting roles and asked shareholders to approve that; one shareholder asked if Deloitte was the only firm considered and if so why the Central Bank (CBK is bank regulator) also had to approve the appointment of the auditors – was there a problem with Deloitte? The chairman answered that they used other audit firms, and that there were provisions that firms could not consult and audit at one company and they were quite satisfied with the work Deloitte has done. He added that Central Bank, in looking out for depositors interest, also vetted audit firms employed by banks to see that they were competent (an aside is that the recent ‘enhanced rules’ for stockbrokers don’t specify their quality of their auditors or indicate that the CMA will even vet them)

Director Re-Elections: Isabella Ocholla Wilson and George Maina were re-elected as directors; so was lawyer Michael Somen who required was an extra vote since he is over the age of 70 years He’s the Chairman of Access Kenya, but it seems NIC have a habit of de-emphasizing their directors board positions on other companies

Bonus share : The next motion, for NIC shareholders to receive 1 new bonus share for each 9 they own produced the first unscripted moment of the day and the hot button issue was again – rogue stockbrokers – three different shareholders asked the same question – i.e. NIC was giving them a bonus share, which they would be forced to take to a stockbroker who may sell this shares without their knowledge, or collapse with their shares/funds. The Chairman replied NIC Bank now had their own stockbrokerage firm NIC capital Securities where their shares would be safe. The war by banks against stockbrokers is still being waged in public – and a few days ago it was Equity Bank shareholders who were being given the same message –that their shares were safer with the strong commercial banks that they know and own, rather than with some small stockbroker

Purchase of 51% of S&F Bank: NIC is purchasing 51% of Savings & Finance, a Tanzanian Bank for a total cost of Kshs. 580 million (~$7.25 million). Continuing part of expansion and diversification since their 2007 rights issue that has seen them open branches in Kenya, an now make a cross-border investment; the vote brought out the most questions of the day;

Q. exchange rate change since deal was announced; why is some payment in Tanzania shillings and some in US$?
– mix of currencies is s how the Tanzanian owners requested it be paid. – the shillings is weaker and they are now paying about 2.1x book value compared to 1.9x earlier. Also some S&F shareholders live outside Tanzania
Q. The owners seem to be family/private individuals:
– True most companies start with individual shareholders only – and the institutional shareholder is the East African Development Bank. S&F was started in the 1990’s and its origins were in hire purchase business are similar to NIC. The shareholders with 49% are also going to be re-investing the NIC money in the banking, not taking it out.
Q. why is the bank attractive? Is it a leading bank in Tanzania – where does it rank?
– Tanzania has 28 banks and S&F would be between no 15 and 20. NIC felt they would get best value by acquiring a small bank and driving its growth. NIC directors did their due diligence, have observed S&F operations, got transaction advice and confidential banking reports from Tanzanian regulators confirming the bank was a good buy. It has 3 branches in Aruaha, Dar es Salaam and Mwanza which are all key trading points. MD added that – NIC was not the only suitor interested in S&F.
Q. How will it be run?
– S&F will have 7 board members – 4 nominated by NIC (including the MD’s post) and 3 by S&F (including the Chairman’s post – Abdulsultan Jamal). NIC have opted to retain the current Tanzanian MD – Suranjan Ghosh, Mark Bomani (former Tanzania attorney general) and Andrew Ndegwa (Kenyan NIC director) and James Macharia (Kenyan NIC managing director) as their four nominees.
Q. Other Kenyan banks have focused on Rwanda Uganda and Sudan- why Tanzanian (which has not been receptive to other Kenyan companies
-Chairman replied that Kenyans were the biggest investor in Tanzania (excluding the mining sector). Also in terms of diversification, the election violence of 2008 affected Kenya, Uganda and Rwanda equally – since countries were on same trade route! However Tanzania was a completely different market. A large untapped country with great agricultural and resource potential. Many NIC customers do business there already.
Q. Deal wrap up?
– Approval has been got from Central Banks of Kenya and Tanzania. After NIC shareholders voted to approve the deals, it is now expected to be wrapped up on Monday next week and S&F will become a subsidiary with their accounts consolidated in NIC’s from next month.

Goodies: a souvenir wall clock

– Smart NIC had a boxed lunch served to shareholders (much easier to manage than any buffet and needs fewer catering staff). each box had cold roast chicken piece, beef sandwich, juice, water bottle, cupcake, and an apple.

Where to Bank an Adsense Cheque in Nairobi

This is a follow up post to the long-running question of what do with an adsense cheque or its’ equivalent. There are dozens of Kenyan bloggers building up small net earnings from adsense and similar web-based advertising companies – but who usually pay in US$ cheques – minimum $100 i.e. now almost Kshs 8,000 which is a tidy sum for a part time activity.

The post is of interest because the costs of clearing such a cherub can run up to 50%at some banks. After the last post on the subject we had these as the cheapest banks:

2. Family Bank – Kshs. 650
3. KCB (said) minimum Ksh.800
4. Co-op Bank – Kshs 1,000
1. I can now add to the top of the pile Barclays Bank of Kenya who charge just Kshs 200 /= (~$2.5) the lowest so far I have verified.

KCB was the only bank (out of 40) to respond to a query via the general e-mail account published by the banks. What does this say about the level of internet interaction? Very bad. There are some non-existent companies with great interactive websites, but with Kenyan banking its the opposite – some great innovative banks who put up massive website, and which, though updated often, rarely respond to to online queries and feedback.

Twitter would be a nice (free) tool for them to use, but no bank has yet embraced corporate blogging, and none are on @Twitter yet. @MosesKeimbaro had a recent post on Kenyan brands on Twitter. – with the most prominent and active being @KenyaAirways. Also here’s a great list of other financial sites on twitter.

New Rules for Nairobi Stockbrokers

stockbrokers to remain hidden

The Kenya Capital Markets Authority (CMA) has published new rules at its website on how they propose to regulate stockbrokers. They have also published proposed rules for Kenya real estate investment trusts – a.k.a. REIT’s as they are called.

Unlike with other plublications like the Treasury Budget process or (new rules from) the Communications Commission of Kenya, the CMA is not inviting public comments or suggestions; these are finalized new rules.

What they include

The Capital Markets (Conduct of Business) (Market Intermediaries) Regulations, 2009
– Intermediaries (i.e. stockbrokers / investment banks) will be required to engage in know your customer (KYC) practices (to prevent money laundering)
– brokers will not recommend unsuitable transactions once they know profile of their customer
– No cold calling allowed (does that happen in Kenya? Banks and insurers sometimes do that)
– Brokers must have policies for customer confidentially, handling customer complaints,
– Brokers barred from front running and account churning
– Brokers must separate client funds and stockbroker funds
– Broker employees undertake not to use information gained from clients for personal gain

contentions clauses
– Will customers really have a right to be paid interest on their funds held?
– Will brokers prepare objective client agreements that will be signed between them and clients – and which call on them to disclose third party remuneration, conflicts of interest etc?

The Capital Markets (Corporate Governance) (Market Intermediaries) Regulations, 2009
– Each stockbroker must have board of directors, who are not children (i.e. under 25 years), and one must not be related to any other director; also the CMA will have to approve any board changes
– new rules vest management of the broker in the board of directors on matters such as audit, risk assessment, key employee hiring & duties
– broker to hire a compliance officer
– broker to hire an internal auditor
– employees to disclose securities they or their close associates own

REIT rules

The Capital Markets (Real Estate Investment Trusts) Regulations, 2009
– REIT/schemes will distribute at least 90% of after tax income as dividends like in other countries
– Scheme may borrow for investments, but these will not exceed 1/5 of total assets
– REIT must have an independent Principal valuer to value the scheme assets. He/she must be changed every three years
– Trust founders may not own more than 50% , and publicly listed ones may have a minimum of 100 members

Summary: The CMA to be notified in advance of key events at stockbrokers; e.g. new key managers, likely changes in ownership, material pending lawsuits, auditor changes. Also, the new compliance rules make it more expensive for small stockbrokers to comply; this may force them to merge or seek new shareholders.

Stockbrokers will however remain hidden as their disclosure requirements remain only to the CMA even on the basic issue of sharing financial returns with the public; stockbrokers are required to prepare only annual balance sheets and profit & loss statements using IFRS; but these they will only be shared with the CMA – not published for the public. Contrastingly , the rules are lenient for stockbrokers and harsher for REIT’s who will publish its (quarterly) un-audited financial results in at least two national daily newspapers of national circulation. REIT’s are also required to employ auditors recognized by the institute of certified public accountants of Kenya (ICPAK), but that does not apply to stockbrokers whose auditor qualifications are not spelt out. why not?

Reading the Barclays Tea Leaves

Barclays Kenya just published their 2008 annual report; what does some interesting points about the banking sector.


Barclays Peek
– Is the second largest bank in Kenya behind KCB, but still tops in profit – with Kshs 8 billion ($100 million) before tax. Has 126 billion ($1.58 billion) in deposits, loans of 108 billion ($1.35 billion) and total assets of 168.5 billion shillings. It would probably reclaim the number one status from KCB, but KCB shareholders will next month absorb the assets of S&L, their mortgage subsidiary
– Shariah Banking Barclays launched La Riba in 2008 – and in 2008 they managed to mobilize over 2 billion in new la riba deposits to stand at 3.3 billion ($41 million) at end of year, but gave out just 19 million in loans
– Customers They have a popular Business club – with over 10,000 members some of whom were flown to Dubai, China and Holland. Barclays had 930,000 customers in 2008 (2007 was 580,000) – compared to Equity Bank’s 3.3 million customers, and 60,917 shareholder 60, 917 (up from 58,945 in 07)
– Staff cutback? Employees in 2008 reduced by 16% – as group had 5,571 at December 08 compared to 6,900 in December 07. In 06 they had 2,197 (but it appears in 2008, they shed the part time staff whose numbers reduced from 4115 to 1698)
– No thanks Agriculture. Agriculture is referred to as the backbone of Kenya’s economy7, but Barclays estimate their exposure to the sector to be just 1% of loans. Private industries account for 44%, with 10% each to manufacturing and to transport & communications sectors.
– Asset finance reduced?? Assets under financial lease decreased slightly – still at 6.1 billion
– Gloabl crisis / External Impact? a 1% or decrease in interest rates would impact profit about 5%, but there’s no impact from strength/weakness of Kenya shilling (bank only does business in Kenya)
– Directors: the three directors who were appointed at previous times are up for re-election on May 15; Brown Ondengo (2003), Jane karuku (2003), and Paul Phemngorem (1998). Barclays (UK) parent, with 68.5% of the vote, will pretty much determine who will remain or leave the board. No other shareholder has more than 1%, with the next largest being Kenya’s national social security fund (NSSF) with 2%
– Cheaper to borrow overseas than the NSE: The bank received subordinated debt in the form of a tranche of NSE listed bonds of 2 billion shillings (3,078b) repayable over 5 years – at 10.36%. They also borrowed 1.25 billion from their Barclays parent; BBK in the form of a 10 year loan at just 2.39%
– Pension Funds gloomy outlook The Barclays staff pension scheme with 44% equity investments was down 13% in value (to Kshs 7 billion), compared to a gain of 6% in 07

Ugandan Envy

this is NOT about Migingo Island

Google Earth image courtesy of afromusing

A year ago wrote this on the information availed to Ugandan investors by their companies; this year the envy is even more, it makes me sad; that by being the leading country in the region, we may not notice we are being passed in some aspects of investor awareness & rights.

Use of E-Mail: The Stanbic Uganda invitation/AGM notice again arrived by e-mail; now many Kenyan companies have passed by-laws allowing them to send out e-mail notices and annual reports to shareholders, but none has done so far. Maybe, with the eventual passage of the much-maligned/controversial communications bill the legal framework is now there to back enable this – but we’ll see; While not every shareholder will have an e-mail account, if 1/4 of 1/3 of some company’s shareholders (Kengen, Co-Op, Safaricom) do, then these companies could potentially save millions of shillings in postage costs.

Investor Disclosures:
(i) For Stanbic UG, rules of voting are clearly stated – shareholders are to endorse new directors and that 1/3 of directors will retire at each meeting.
(ii) for directors who are up for election, their mini-CV’s are printed out for all to peruse i.e. their ages, year of appointment, educational qualifications, directorships in other companies, and committee seats.

In Kenya, Company Chairmen just mumble through, if at all, fully expecting elections to be a foregone conclusion. Refreshingly here, the directors up for election at Stanbic Uganda (Hannington Karuhanga, Kitili Mbathi, and Samuel Sejjakka) are all younger than 50 years. In Kenya, opportunities for younger leaders & directors are the exception rather than the rule. But at Stanbic Uganda – the Chairman and Deputy Chairman have their tenure is capped at two terms of 5 years only.
(iii) Remuneration of directors is declared. Again in Kenya money amounts paid to directors are rarely mentioned, but in Uganda, they are spelt out for shareholders to approve – here the Company (non-executive) Chairman gets an annual retainer of US$7,500 while a director gets US$5,500

Language used; several companies (most recently) KCB have amended their company article to allow for electronic communication with clients; but they merely replace one of gibberish with another one, without bothering to explain what the jargon means. Here; Stanbic explain allows video-conferencing or tele-conferencing to be used at board meetings

Proxy detail proxy forms contain a lot more details including the items to be voted for with shareholder able to vote for or abstain on votes. They also call for shareholders to provide contact details (name, e-mail – what an easy way for a company registrar to build up a working database to manage is subsequent years)

Shareholders or their proxies (who can be more than one) are entitled to attend, speak, and vote, and the endorsement /presence of a proxy does not disqualify a shareholder from attending; this enables a shareholder to bring his wife/wives or children for them to learn about the process!

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Investor guides: There are many things to learn from other countries in the region on investor rights and information despite Kenya being the leader. We are innovative, Uganda is about to unveil a CDSC system that Kenyan investors have had for three years, but which rogue stockbrokers have besmirched. It would not be surprising if the Ugandan version may be sorted out ahead of time, closing loopholes that will be used to protect shareholders, and by educating them on how the system works.

All the regional exchanges – Kenya, Tanzania, Uganda, and soon Rwanda (where KCB, Kenya’s largest bank in Kenya will be the first company to have its shares be (cross- listed & trading) all have the same information; but my NSE seems stale, like all the regulations were put up years ago and forgotten. Usualyl, we just check for the latest share trades, bond trades and quarterly financial announcements.

e.g. Faced with a budget deficit, Kenya has lowered the minimum amounts to invest in bonds to Kshs. 50,000 ($625). The Central Bank of Kenya which issues these bonds has put up some investor information basics, but nothing from the NSE who trade in these bonds. In Uganda, there is an advisory page for investor guides for bonds and shares, for any new investor to read, download for free.

Also in Kenya, tribe is the unacknowledged elephant in the room; one we pretend to not be influenced by, but which governs many aspects of our lives. Kenyans are required to communicate official in English (almost all government documents), and to a lesser extent in Kiswahili. But there are rural folk who may not understand the national or official language, but may wish to learn about shares and bond Uganda has investor awareness booklets in vernacular languages – including a Luo investor guide (PDF)(for the Northern Region) available from the Uganda Securities Exchange. And that, properly disseminated, may be worth much more than a small island.