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About bankelele

Writing on banking, finance and investments in East Africa. Email bankelele_at_hotmail.com, Instagram: Bankelele, Twitter: @Bankelele.

Equity to absorb Spire Bank

Kenya’s smallest bank will wind up banking operations in a deal that transfers most of its business to Kenya’s second-largest bank, by market share.

A notice by Spire Bank states that all its depositors, except its main shareholder, will become customers of Equity Bank Kenya. Spire had 20,000 depositors, with about 3,700 loan customers and an equivalent of Kshs 1.32 billion of deposits will be transferred to Equity along with loans worth Kshs 945 million.

Equity term the transaction as “immaterial” to their group financial statements as it only adds 0.25% to their deposits now at Kshs 522.7 billion, but which will ensure that Spire customers enjoy uninterrupted banking services. Spire will pay Equity a cash amount, estimated at Kshs 468 million, to bridge the difference in the loans and the deposits transferred.

As per the agreement, Spire will cease offering bank services and deal with its creditors and staff. Spire’s parent, the Mwalimu National Sacco, has over Kshs 60 billion in assets but will walk away from the ill-advised venture into banking – that never made a profit from when it was acquired as Equatorial Commercial Bank – confident that the exit decision is in the best interests of its customers and stakeholders.

Olympia Turnaround? Part III

The Olympia Capital Holdings 2022 shareholders AGM at Nairobi club on Friday, August 26 started with a bit of confusion as the Chairman, Dr. Chris Obura, insisted that shareholders needed to wear masks unless they were speaking. It was attended by about 100 shareholders and was the first physical meeting in three years as the last two had been held virtually. The Chairman said the company had found that hosting virtual AGMs was more costly than physical ones and so the company had decided to try one, even as Covid-19 protocols remain.

The meeting took about an hour with lots of Q&A with shareholders about not having seen the documents they were being asked to approve, such as the annual report and minutes of last year’s online AGM (posted online and which the registrars had emailed) and the lack of a dividend.

Governance: The company has a unique structure with a holding company and subsidiaries and has primarily relocated its business to Botswana. The Managing Director was not at the AGM as the Chairman said that he works full-time in Botswana. This has been the case since the passing of their previous Managing Director Michael Matu in 2020.

Manufacturing Cost: During the Q&A, the Chairman mentioned that, of their Kshs 500 million in sales, 400 million is from Botswana where Olympia now does its floor tiles manufacturing, after halting that in Kenya. He said that the cost of manufacturing was one-third cheaper in Botswana than in Kenya.

Dividend when? Olympia can only pay dividends when its various subsidiaries pay dividends to the parent company – and the one in Botswana was not allowed by law to pay until it had settled a bank debt. But now that the loan was capitalized, a dividend may come to Olympia’s shareholders from profits next year.

Goodies: The Chairman said they had not expected many shareholders to show up and that the venue had only set out a small amount of tea and snacks. Nevertheless, the board agreed on Kshs 500 cash as lunch allowance and each shareholder was paid on the way out of the meeting.

Verdict: Looks like shareholders have a pent-up demand to attend physical AGMs after two years of virtual ones, that were occasioned by Covid-19.

Absa Kenya to pay an interim dividend for 2022

Absa Bank Kenya continued to show strong growth in a complex environment of macroeconomic challenges and high inflation. At the announcement of financial results for the first half of 2022 in Nairobi, Managing Director Jeremy Awori said the institution has transformed into a financial services giant with new offers in bank assurance, wealth management, risk management, research, and asset finance. These are all built around being a digital-first entity with products like Timiza which added 4 million accounts, leading to a five-fold growth in the number of customers they serve.

In the first half of the year, Absa Kenya had its fastest revenue growth in a decade with income growing by 17% to Kshs 20.9 billion and they recorded a pre-tax profit of Kshs 9.1 billion, a 15% increase. Loans were up 19% to Kshs 262 billion and deposits up 7% to Kshs 282 billion, and Absa Kenya assets are now Kshs 445 billion.

Absa Kenya’s Chief Strategy Officer Moses Muthui said that revenue was now growing faster than their peers in the banking industry and their strategy will be to stay relevant to customers by growing opportunities that offer sustainable and inclusive growth. Absa’s cost-to-income ratio is 42%, against a five-year target of 45% and this allows the bank to invest in areas to innovate for customers. As part of their next five-year strategic plan, starting from 2023, they will grow into other new businesses like asset management and consumer payments businesses such as diaspora remittance. They will re-enter the custody business that Barclays exited a decade ago to serve international clients as well expand their investment banking services across East Africa.

To give returns to investors and enhance shareholder value, Absa Bank Kenya will pay a Kshs 0.20 per share dividend, amounting to Kshs 1.09 billion, one of the few institutions that will pay an interim dividend. Already shareholders of the Nairobi-listed bank have one of the highest returns on equity at 23% and dividend yields.

Laikipia Infrastructure Bond

Laikipia County includes Nanyuki town which is famous for its views of Mount Kenya and vast farms, several ranches and wildlife conservancies in the semi-arid north of the country.

Under its second governor, Ndiritu Mureithi, the County Government of Laikipia also went the furthest in advancing the country’s first municipal bond. Under the new constitution (adopted in 2010), counties can do this to finance projects, if the national government guarantees the borrowing, with the approval of the county assembly (local parliament)

The Laikipia county govt pursued this route in recognition that it had limited resources to undertake large projects and in the hope that the funds raised from the bond will help to catalyze its economy from the current Kshs 100 billion to Kshs 400 billion per year.

When the county assembly had earlier rejected the bond proposal, more public participation and marketing was done on the infrastructure bond. This was done in places like Nyahururu and Rumuruti with residents asked to identify their priority needs and the feedback ranged from issuance of title deeds, completion of feeder roads, youth centres, public sanitation and upgrade of health facilities.

In May 2022, the Cabinet granted final approval to Laikipia’s application for a Kshs 1.16 billion domestic infrastructure bond at a “market deemed coupon” and which the Senate was told would be a 7-year note at 12% with a bullet payment on maturity. The bond is to go towards capital projects and be paid from normal revenue.

For investors, infrastructure bonds are tax exempt. The minimum investment required is Kshs 50,000 and investors should have a CDS account.

The funds to be raised are designated as Kshs 1.1 billion for smart infrastructure upgrades in ten towns to have street lights, paved walkways and sewerage lines etc. at places like Doldol. Others are the Bemwaki road, Muwarak lighting, and Nanyuki bus park) as well as dam projects at Wangwaci and Ilpolei for Kshs 165 million that are to enhance agricultural production.

A county can borrow 20% of its audited revenue and counties were given the green light to borrow up to Kshs 60 billion and Laikipia was the fourth county to earn a credit rating after Bungoma, Kisumu, and Makueni – all counties that were led by “progressive” governors. Makueni was hailed for its health care system and agro-processing ventures, Kisumu under Professor Anyang’ Nyong’o, father of actress Lupita Nyongo has a long history even before he became governor, while Bungoma was led by one of the country’s leading actuaries – who also lost his election last week for being on the ‘wrong party.’

It is not clear what will happen to the bond with the exit of its champion governor. In a Standard article (paywalled) after the election loss, Ndiritu was praised was raising Laikipia’s on-source revenue, steering county residents to enrol in the National Hospital Insurance Fund (achieving a national NHIF high of 64%) and developing programs for leasing road-building and medical equipment.

Laikipia was assigned BB+(KE); “outlook stable” in February 2021 by Global Credit Rating (GCR). Later, after a review period, was upgraded to BBB-(KE) in April 2022, followed in June 2022 to ‘evolving’ from ‘stabledue to enhanced revenue collection of Kshs 840 million in the 2021 financial year.

Whether Laikipia’s bond rating and progress will change, with the defeat of the governor, remains to be seen. One financial expert thinks that the new county government will not see the infrastructure bond as feasible to advance any further.

EDIT November 10, 2022. According to an article in the East African Standard, Joshua Irungu who took over as governor of Laikipia in August 2022 has appointed a task force to look at the viability of the bond as “the county government’s projections of revenue growth, prevailing economic realities, the market base lending rates revision as well as the cost of monies involved are making further pursuit of the bond unattractive at the moment. “

Chase Bank’s Long Tails

Nearly six years after the collapse of Chase Bank, the Capital Markets Authority has come down with harsh penalties on some of its former senior managers, directors and auditors. This is not over the collapse of the bank, but over misleading statements, failure to disclose material information or conflict of interest in the issue of a bond that the bank  floated in May 2015. Its first tranche raised Kshs 4.8 billion, 10 months before ether bank close. The bond’s Information Memorandum (IM) indicated that the funds raised would be used for branch expansion, IT investments, and new products. 

Penalties Levied:

  • Kshs 10 million against Deloitte, the reporting accountant for the bond note program and its partners will be reported to ICPAK.
  • Kshs 5 million fines each against Duncan Kabui, the former Group Managing Director,  Paul Njaga the former CEO and Ken Obimbo the former Group Finance Director. In addition, Kabui is debarred from being a director or partner in an issuer on the Kenyan capital markets for 10 years, while Obimbo is debarred similarly for 5 years.  
  • Kshs 2.5 million each against the former members of the Audit & Risk Committee – Laurent Demey, Muthoni Kuria and Rafiq Sharrif. The fine also was levied against Anthony Gross, who was Chairman of the Committee and who was ordered to attend corporate governance training.
  • Kshs 1 million, a smaller fine, against Richard Carter, a former director of Chase.  

 The Business Daily (BD) had reported on some findings that the CMA had made unearthed at Chase when it went reviewed its IT systems and which the CMA felt that Deloitte should have flagged such as a Kshs 14 billion hole at Chase, an IT override switch, and a Kshs 1 billion bonus paid to Chase’s former Chairman Zafrullah Khan that was later shared with other directors and executives.  The fines are against 9 of 12 people targeted, and who appeared before an ad hoc committee put together by the CMA but 3 others went to court and halted the CMA probe proceedings against them – and the BD has identified them as Khan, former Finance GM Makarios Agumbi and former Corporate Assets Manager James Mwaura.

In another matter, a judge has ordered SBM Bank which took over the assets of Chase Bank to compensate AfrAsia Bank of Mauritius for a $7.5 million deposit that they had placed at Chase just before the bank was closed in April 2015. The judge said that due process was not followed in notifying depositors about the transfer of the bank assets from Chase to SBM and found that SBM, not the Kenya Deposit Insurance Corporation, is where AfrAsia should have pursued their claims. Will this open the door to other aggrieved depositors in collapsed banks like Chase, Dubai, and Imperial? – Read more in the Business Daily.  

Related:

  • Earlier updates in the Chase and Imperial bank cases 
  • Past CMA actions on company directors on governance matters.