August 2 saw bank closures in Ghana and Tanzania with interesting back stories on the institutions from regulators in both countries.
Tanzania: the regulator Bank of Tanzania (BoT) issued notices that covered two separate cases. BoT took over Bank M, closing it down for three months and appointed a statutory manager (in place of the directors and management of the bank) who will determine the future of the institution. The statement (PDF) read that this was done for reasons that “..Bank M has critical liquidity problems and is unable to meet its maturing obligations. Continuation of the bank’s operations in the current liquidity condition is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system.“. Two years ago, Bank M distanced itself from M Oriental Bank in Kenya.
The Bank of Tanzania also published an update (PDF) on other banks whose licenses it had revoked in January 2018. Of these earlier bank closures, three of them had been given up to 31 July to increase their level of capitalization and as a result, the BoT had approved a decision to merge one of the affected banks – Tanzania Women’s Bank with another bank – TPB which will result in all its customers, employees, assets, and liabilities transferring to TBP Plc . Meanwhile, two of the other banks, Tandahimba Community Bank and Kilimanjaro Cooperative Bank managed to meet the set minimum capital requirements and have been allowed to resume normal banking operations.
Ghana: Meanwhile in Ghana, the regulator Bank of Ghana revoked licenses of five banks – uniBank Ghana, Royal Bank, Beige Bank, Sovereign Bank, and Construction Bank – and appointed a receiver manager to supervise their assets and liabilities as a combined new indigenous bank, called the Consolidated Bank. All deposits at the five banks have been transferred to the new bank and customers will continue banking at their usual branches which will now become branches of Consolidated. Also, all staff of the five banks will become staff of Consolidated, except for the directors and shareholders of the five banks who will “no longer have any roles”
The Bank of Ghana statement reads that .. “to finance the gap between the liabilities and good assets assumed by Consolidated Bank, the Government has issued a bond of up to GH¢ 5.76 billion. ” and goes on to give some details and background of the problems encountered at the former five, leading to the subsequent bank closures:
- uniBank: The Official Administrator appointed in March 2018 has found that the bank is beyond rehabilitation. Altogether, shareholders, related and connected parties of uniBank had taken out an amount of GH¢5.3 billion from the bank, constituting 75% of total assets of the bank. Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totaling GH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio. uniBank’s shareholders and related parties have admitted to acquiring several real estate properties in their own names using the funds they took from the bank under questionable circumstances. Promises by these shareholders and related parties to refund monies by mid-July 2018 and legally transfer title to assets acquired back to uniBank have failed to materialize.
- Royal Bank: Its non-performing loans constitute 78.9% of total loans granted, owing to poor credit risk and liquidity risk management controls. A number of the bank’s transactions totaling GH¢161.92 million were entered into with shareholders, related and connected parties, structured to circumvent single obligor limits, conceal related party exposure limits, and overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.
- Sovereign Bank: Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank. The bank has however not been able to retrieve this amount from the investment firm with which it was placed, and it has emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by the Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank. The promoters of the bank have since surrendered their shares to the bank, while the directors representing those original shareholders have since resigned. The Bank of Ghana has concluded that Sovereign Bank is insolvent, and that there is no reasonable prospect of a return to viability.
- Beige Bank: Funds purportedly used by the bank’s parent company to recapitalize were sourced from the bank through an affiliate company and in violation with regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest it in the bank as part of the bank’s capital. The placement by the bank with its affiliate company amounted to 86.86% of its net own funds as at end June 2018, thereby breaching the regulatory limit of 10%. Also, the bank has not been able to recover these funds for its operations.
- Construction Bank: the initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited. An amount of GH¢80 million out of the amounts reported as the bank’s paid-up capital and purportedly placed with NIB and uniBank, remains inaccessible to the bank – and the bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatens the safety of depositors’ funds and the stability of the banking system.
Excerpts from a piece by Andrew Alli, the former Africa Finance Corp (AFC) CEO, in his debut column for Quartz Africa on separating myths and realities of the role of China in Africa’s infrastructure developments.
China firms funded, built and operate Kenya’s new railway.
- China’s was the fourth largest foreign investor in Africa spending about $40 billion in 2016, according to UNCTAD’s World Investment 2018 report, behind the US ($57 billion), the UK ($55 billion), and France ($49 billion).
- Construction contracts are backed by Chinese financial institutions—like China Export -Import Bank and Sinosure – looking to support the exports or sales of Chinese products and services. The mission of these financing entities is to support jobs and income generation in China, as well as to support more strategic objectives of the Chinese government.
- Chinese companies are surprisingly risk-averse when it comes to Africa – most Chinese financiers will not consider a project without insurance from Sinosure, the Chinese government-owned political risk insurer, or other similar institutions. In turn, Sinosure often requires a guarantee from the government of the country in which the project is located. (e.g. – with Kenya’s Standard Gauge Railway construction, the contracts specify that there will be insurance cover of 6.93% of the commercial loan – done by a Chinese firm, SinoSure, to take care of nonpayment). Sinosure insurance and other financing costs do not come cheap, which leads to the point that Chinese firms are not necessarily cheaper than firms from other countries – and while the bare construction costs of certain projects may seem cheaper, even after equalizing for quality, there are other costs that may apply including the insurance and other financing costs mentioned before, and costs associated with local content.
- It is true Chinese firms prefer to use all-Chinese inputs. If you want local workers and contractors, you will have to make that a negotiating point.
- While some work done by Chinese firms can indeed be shoddy, this doesn’t have to be the case. For example, while a Western firm may tell you a bridge will cost you, say, $300 million. A Chinese firm may tell you that you can have a $300 million bridge, or a $250 million one.- and things that may be taken for granted in other parts of the world can be negotiable when dealing with a Chinese firm. You have to be careful to specify the quality that you want and the standards that you would like the project to be built to. You also need to be very specific about the environmental and social standards you want the project to adhere to.
- For too long the number of firms willing to engage in, and finance, projects in Africa has been very limited, meaning that competition has also been limited leading to high prices and a lack of innovation. The increase in interest by Chinese firms has increased the amount of competition, forcing prices down overall and improving quality. The bleating of companies being forced out of cozy monopolies is probably one cause of the constant refrain we hear about the “dangers” of Chinese interest in Africa. We shaved the costs of that project in Ghana by over 20% from initial quotes by running a competitive process involving a Chinese firm.
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Fresh from the Farnborough air show, Embraer embarked on an African tour to showcase their planes in what they see as an under-served air market on the African continent.
The company flew an Embraer E190 E2 jet with a unique shark-nose look (nick-named “profit-hunter”) to Algiers (home of Air Algerie) and Casablanca (Royal Air Maroc), then on to Accra and Nairobi. Kenya Airways (KQ), which is the largest Embraer E-jet operator in Africa and also hosts one of the few approved E190 services centres in Africa, staged an event that featured local aviation officials, KQ customers and the Brazilian Ambassador to Kenya that ended with demonstration flight that over Mt. Kilimanjaro, Africa’s highest point.
Embraer were keen to showcase the quiet-ness and efficiency of the E190 which they bill as the best single-aisle aircraft. They view Africa as an under-served aviation market in which 95% of flights have less than 150 passengers and 61% of routes have less than one flight per day, with many potential new routes being 4-5 hour flights, that are beyond the operational reach of propeller planes and with their E-jets as just the right size for African airlines.
Kenya Airways has been flying Embraer’s since 2006. They stared with the smaller E170 and upgraded to the E190’s which now form a third of their lean fleet; they have 15 of them – 10 are owned, 5 on lease – and they seat 12 passengers in business class and 84 in economy. But it is unlikely that Kenya Airways that is emerging from a long restructuring process will be buying any more planes soon, but other things are happening and at Farnborough, Embraer and KQ announced a new spare parts supply deal.
After Nairobi, the E2 jet flew on to Mauritius where Air Mauritius is tipped to be a potential customer and they planned to continue on to South Africa where Embraer has a training centre and a regional office for Middle-East and Africa.
EABL released their financial results for their 2018 year to June this week. It was a tale of two halves with flat growth in the first half of the year which coincided with Kenya ’s prolonged electioneering period and which affected sales of its products such as Senator lager, an affordable beer brand. But the second half of the year (January to June 2018) saw a more business-friendly environment and more money in consumers pockets.
EABL ended the year with 5% revenue growth to Kshs 73.5 billion and the star of the show for the company in 2017 was Tanzania which saw 41% growth, mainly driven by Serengeti Lite beer. Also, special innovations that contributed 22% to the results is one of the best performances in the world. At EABL, Tanzania’ grew to account for 11% of revenue while Kenya’s was 73%, and Uganda was at 16%. Capital expenditure was Kshs 13 billion, up from the 5 billion the year before and Kshs 7.8 billion was due to the Kisumu plant which is expected to be opened later in 2018. While overall profit before tax for EABL was Kshs 11.7 billion, a decline of 12% from the year, the company will pay out the same Kshs 7.50 per share dividend to shareholders.
The EABL managers spoke of innovating to reach the 1 million consumers who attain the legal drinking age (18) every year in Kenya – and investment in existing brands, and rolling out new brands to win over changing customers tastes. They also made some excise tax savings in Uganda by moving some Tusker and Guinness production there while in Kenya, EABL’s profit was weighed down by a Kshs 2 billion one-off provision for taxes that significantly reduced their final result. They said a stable tax environment would enable the company to generate more taxes for governments without causing consumers to pay more.
Also that by doing more local production of beer and spirits at Ruaraka in Nairobi, at Tanzania, Uganda and soon at the new line at Kisumu has allowed them to bring global brands into countries and produce and offer them at local prices. In the 2019 financial year, they will commercialise the Kisumu brewery which will also benefit 15,000 farmers and generate over 100,000 direct and indirect jobs in the production and distribution chain of Senator beer from Kisumu.