Category Archives: Bank rankings

Interest Cap Impact and Bank Resilience

The end of August marks the deadline for Kenyan banks to publish their unaudited half-year results (January to June 2017). Those of most banks are done and there are some trends, some concerns and some resilience areas seen in what’s been a challenging year for the sector that has for a long time been seen as one that earns super-profits for its shareholders.
The interest rate capping bill was signed last August, and while its initial impact was not fully seen in the 2016 results, one year later these can now be interpreted. The law has had far-reaching impacts on different banks, their performance, operations and strategic directions. Overall, there has been a decline in bank results due to a mix of interest rate caps and digitization, as phones have taken over from branches as the main point for the bulk of customer transactions.
Some observations: 
  • Less traditional banking: there has been a decline in assets as more banks have turned to digitization to cut costs, and increase efficiency. At Equity, deposits were flat between March and June, which also marked the third straight quarter of overall loan declines
  • Lower interest income: e.g. 45% down at Family Bank, plunging it to a half-year loss
  • A buildup of government debt: Equity now has Kshs 105 billion, KCB 100 billion, and Diamond Trust 83 billion.
  • More closure of branches e.g. Barclays, Standard Chartered, Bank of Africa and Ecobank. But it’s not all gloom as some banks like Cooperative and Diamond Trust have announced plans to open new branches.
  • Job cuts have been announced at KCB, Standard Chartered, Barclays, Family Bank, National Bank of Kenya, NIC Bank, Ecobank, Bank of Africa, First Community Bank and Sidian Bank.
  • With nowhere to go, banks are giving money back to shareholders. Some banks have reduced capital, while KCB with profit flat at the half-year will pay a rare interim dividend confirming analysts’ view that some banks will return more capital to shareholders at a time when they have curtailed lending to riskier customers. 
  • Big banks are okay, small ones, not so much:

  • Losses, not profits. E.g. Family and Sidian, went into the red at the half year, despite layoffs and closures, while Ecobank managed to stay above water. These have mainly been attributed to reduced interest income.
  • Declines in loans and deposits at tier ii banks, and T1 equity
  • Mortgage declines: Buy Rent Kenya said that there has been a major drop in the number of mortgage applications over the past year and that those that the cap was meant for are currently the biggest losers as banks are skeptical to give credit to most individuals as they now have numerous terms and conditions that are not easy to meet.
  • Local banks converting debt to equity at Kenya Airways: This has been a reluctant move, with three banks delaying the Ksh 23 billion conversion that will see a consortium of Kenyan banks become the second largest shareholder at the airline.
  • Equity announced they will no longer lend unsecured loans to salaried Kenyans, cutting off a product feature that has brought them great popularity.
  • New business lines:  Banks have looked to other sources of income this year. Co-operative Bank which has net interest income and pre-tax profit that was down 10% in the half-year, received regulatory approval from the Central Bank of Kenya to enter into a joint venture with Super Group, a leading South African leasing company and together they will target major infrastructure projects, government vehicle leasing, oil & gas exploration, and other leasing opportunities. Elsewhere, National Bank entered a partnership with World Remit to allow remittances to be paid directly into bank accounts at NBK, Barclays is funding solar mini-grids in Turkana while Standard Chartered bucked the trend on Equity and will step up unsecured lending. 
  • Non performing loans (NPA’s) are up: At NBK, they are up to 29 billion, half the 57 billion loan book. NBK is awaiting a Kshs 2.9 billion NSSF (shareholder) loan to shore up capital.
  • NPA’s have also gone along with increased provisions e.g. 1.8 billion at Stanbic at the half-year.

Atlas Mara Prospectus Peek

Atlas Mara is selling 44.44 million new shares at $2.25 each to raise $100 million. Atlas Mara is acquiring 13.4% equity in Union Bank Nigeria (UBN), from Clermont Group for $55 million, increasing its stake to 44.5%.

This offer aims to raise $30 million from Fairfax Africa (a Canadian investment holding company that is listed on the Toronto Stock Exchange) by selling them 13.33 million shares at $2.25 each. Fairfax will also sign up for $100 million of mandatory convertible bonds due in 2018. It is intended that the funds raised from the issue of the mandatory convertible bonds will be used to fully fund the UBN purchase and the remainder be used to fund the bank (expansion of the market, treasury and fintech business lines and product offerings) and participate in the UBN rights issue.

Atlas Mara is a company incorporated in the British Virgin Islands (largely a tax-free territory – no income, withholding or capital gains taxes) and is the holding company for a group that provides bank and financial services across sub-Saharan Africa which they intend to disrupt. Atlas Mara was formed in November 2013 by Atlas Merchant Capital LLC and the Mara Group, led by Robert E. Diamond Jr. and Ashish J. Thakkar, respectively. In 2016, Atlas Mara had $2.7 billion assets and $ 9 million profit in 2016.

Africa footprint: Besides UBN, they also own 100% of Finance Bank of Zambia (the 5th largest bank in Zambia, serving 2 million people), and 62.1% of Banque Populaire du Rwanda (swelled by a merger with BRD Commercial Bank). Also ABC Holdings – Botswana (owned 62.13% by the Company and 37.87% by Atlas Mara Financial) owns 100% of African Banking Corporation Zambia, 100% of ABC Holdings (Zimbabwe), 68% of Tanzania Development Finance Corporation, 97% of African Banking Corporation of Tanzania, 100% of African Banking Corporation of Mozambique SA, and 100% of African Banking Corporation of Botswana

Atlas shareholders are Guggenheim Partners Investment Management (11.22%) Wellington Management Company, LLP (9.91%) Owl Creek Asset Management, LP (7.99%), Trafigura Holding (6.23%), UBS Asset Management: O’Connor (8.10%) Janus Capital Management LLC (3.92%). Of the founders, Atlas – AFS Partners LLC has 0.5% and Mara Partners FS has 0.13% while Mr. Diamond beneficially owns 1,000,000 Founder Preferred Shares and Mr. Thakkar beneficially owns 250,000 Founder Preferred Shares.

UBN is a mid-tier bank with about 3% market share of assets and loans and deposits in Nigeria. It was established in 1917 and rescued from insolvency in 2009 along with other banks. It now has 3 million customers, 900 ATM’s and 414,000 mobile banking users and, in 2017, UBN  signed agreements with Visa and MasterCard

UBN Plans: While Atlas Mara is not going for a majority stake in UBN (though they may choose to do this), they will;
– Push UBN to be a leading Tier II bank in Nigeria
– This will be done using fintech and treasury initiatives
– They will use UBN to secure more lending
– After 2019, they will push UBN to be a Tier I bank by acquiring another Nigerian bank

Risks facing UBN: Nigeria has recently experienced significant depreciation of the Naira, inflation and economic recession. Also, UBN’s loan book is exposed to the oil and gas sector which comprises 47% of its lending. Also, there is currently a 12.9% free float of UBN’s shares, which is below the mandatory 20% free float requirement prescribed by the Nigerian Stock Exchange Listing Rules.

Fees: $1.9 million will be paid to Atlas Merchant Capital LLC, the investment fund co-founded by Bob Diamond, upon completion of the transaction.

The deal deadline is 29 August.

Extracts from the Atlas Mara prospectus.

EDIT August 30 Atlas Mara is pleased to announce the closing of the offer period for the recently launched Placing and the Open Offer on 29 August 2017. The Placing and Open Offer, together with the recently announced strategic investment from Fairfax Africa (comprising a Mandatory Convertible Bond and a Firm Placing) constitutes “the Strategic Financing”. The Strategic Financing will support Atlas Mara’s growth initiatives in the acquisition of additional equity interests in Union Bank of Nigeria Plc (“UBN”) and scaling up the Markets and Treasury and Fintech business lines. ..Bob Diamond, Chairman of the Board of Atlas Mara, said: “We are thrilled to have Fairfax Africa as our long-term partner. This transaction puts Atlas Mara in a very strong position to deliver on our strategic goals. We remain focused on execution and delivering on cost discipline and profitability.”

Concern about Kenya Banks

Jaindi Kisero writes about Kenya banks this week with a note of concern:

I have been reading through data based on a review of the Q1 2017 regulatory disclosure that banks must publish quarterly in fulfilment of the requirements of prudential guidelines by the Central Bank of Kenya. The statistics make for very depressing reading.

  • Big banks are not lending to smaller ones; they are concentrating on lending to their fellow tier 1 banks.
  •  Small banks are lending to one another at rates more than double what the big one are doing among themselves.
  •  A number of small banks have been taking deposits at rates higher than the 7%  limit set by the rate-capping law.
  • The number of banks that are utterly dependent on the Central Bank window have increased to four.
  • A number of the small banks are yet to reprice their loans and are, therefore, still charging customers rates above the rate cap of 14%, running the risk of regulatory penalties.
  • Banks have continued to lend money to companies that are not able to pay back. The banks are usually reluctant to discontinue lending out of the fear that such action will recognise their own losses on the loans.

In sum, the data reveals that too many of our small banks are facing a dangerous cocktail of declining margins, declining liquidity, and deteriorating asset quality.

Barclays Kenya 2016 Financial Results

Today, Barclays became the first Kenyan bank to release its financial results for the year 2016, which was a tumultuous year for the Kenya banking sector.

New bank chairman Charles Muchene said the year saw challenges with new business models, interest rate caps and the announcement of the parent sale. He also praised his predecessor, F. Okello.

Thereafter CEO Jeremy Awori said that while Kenya’s economy looked stable with an enviable economic growth rate, a stable currency and moderate inflation, the dip in shares at the Nairobi Securities Exchange and profit warnings issued by various companies showed some the struggles that companies, including their customers, were going through. He added that challenges at some banks had resulted in increased regulatory scrutiny and audits on systems, anti-money-laundering, and insider lending all other banks, and Barclays had passed. Also, that  2018 will bring new rules on impairment (bad loans) and capital requirements.

They had the investment in technology by going paperless and customer focused channels including intelligent ATM’s that allow 24-hour cash deposits, as well as enhancing internet and mobile banking. They have also invested in alternative channels and were the first international bank to embrace agent banking in a deal they signed with Posta Kenya under which they would have post offices in far-off places (like Wajir) act as customer interaction points for the bank.

Bank branches handled 43% of transactions in 2016, which was down from 59% as other channels recorded increases with ATM;’s handling 34%, digital 14%, and POS 9%

Summing up the financial results for the year, Barclays assets grew by 8% to Kshs 260 billion, deposits went up 8% to Kshs 178 billion while loans went up 16% to Kshs 169 billion. Interestingly 68% of bank deposits don’t earn interest (they are in transactional accounts). Also, the loans increases were mostly in the first half of the year while those after the interest rate cap law (passed in September 2016)  were mostly existing customers topping up their loans.

Income went up 8% to Kshs 31.7 billion as expenses also went up 8% to Kshs 16.9 billion. But there was a huge jump in provision got bad loans, which more than doubled, to Kshs 3.9 billion and this resulted in pre-tax profit dipping from Kshs 12 billion to Kshs 10.8 billion. 90% of the impairments were from retail/ personal lending.

The dividend for the year will be Kshs 1 per share – comprising an interim dividend of 0.2 per share and a final dividend od 0.8 per share – unchanged from 2015. The payout will be a total of Kshs 5.43 billion (~$54 million)

Going forward, digital and automation will be key drivers to give customers better and efficient experiences. Barclays also plans launch new mobile banking products soon, and to become a financial technology partner to their customers, not just a bank.

Kenya Bank Rankings Part II

Bank rankings, following part I

September 2016 numbers used

11 Citibank

12 National

13 Baroda

14 Family

15 Housing Finance

16 Prime

17 Bank of Africa

18 Ecobank

19 India

20 Guaranty Trust (GT)

21 Gulf African

22 Victoria

23 ABC

24 Sidian Bank (formerly K-Rep)

25 Jamii Bora

26 Habib AG Zurich

27 Development Bank of Kenya

28 Giro *

29 Guardian

30 First Community

31 Spire (formerly Equatorial)

32 Consolidated Bank

33 Credit Bank

34 Habib Bank

35 Transnational

36 Bank M (formerly Oriental)

37 Paramount

38 UBA

39 Middle East
Missing from the bank rankings list

  • Chase Bank (in receivership)
  • Imperial Bank (in receivership)
  • Fidelity Bank *
  • Dubai Bank (in liquidation)

* exiting in 2017