- 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:
.The banking industry has become skewed. The Top 10 banks share 92% of profits. The small banks share 8%. James Mwangi – #EquityH1Results
— jgmbugua (@jgmbugua) August 22, 2017
- 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.
- The IFC remains as a principal funder and shareholder for the bank.
- Diversification has paid off with the bank having 30% of assets and 19% of profits from outside Kenya. While 77% of Diamond Trust’s $61 million after-tax profit is from Kenya, the Tanzania and Uganda operations contributed about $7 million each of profit with Burundi trailing at ~$150,000
- They have extended traditional banking services in the mobile and card age by having M-Pesa at all their ATM machines. They also issues prepaid cards for NationHela, NakumattGlobal and MiCard and handle remittances/money transfer for WesternUnion, MoneyGram and XpressMoney
- Others institutions that may need to have rights issues or raise capital this year include ABC, Commercial Bank of Africa, Consolidated and Equatorial banks.
Year – Nov-06 ; Nov-07 ; Jul-12
Target (Kshs M) – 735 ; 1,600 ; 1,809
New shares (M) – 15.5 ; 23.3 ; 24.4
Price (Kshs) – 50 ; 70 ; 74
Ratio – 1:8 ; 1;6 ; 1;8
Budget (Kshs M) 41.6 ; 54.7 ; 57.6
Maina T kind of started this thread with a review of the P/E correction of Nairobi Stock Exchange (NSE) shares.
NSE: ½ full or ½ empty? – to take it further, how are NSE shares today compared to last October? If you considered them fairly priced then, you are frowning today, but if you considered them over-valued, are you smiling today?
– Shares that have appreciated since October 2007: 4% – BAT Scangroup, 3% – Access 3%, 1% – Unga
– Shares that have depreciated since October 2007: (83%) – Mumias (74%) NIC (59%) Nation Media Group, CFC (55%) – Housing Finance, (53%) – Sasini (51%) – Kenya Airways (47%) – Sameer (45%) – Kengen, Centum (44%) – Eveready (43%) – Williamson (42%) – Express, Jubilee (41%) – KPLC, Kenol
– Banking sector: Best (4%) – NBK, worst (-74%) – NIC, sector average is -32%
Interesting that despite the world financial meltdown of late 2008, the Kenyan financial sector is faring no worse than other sectors (agricultural, industrial) which are all down approximately 1/3,and remains the sector most likely to produce super-profits again this year. Best performing sector is commercial services (excluding Safaricom only listed in June 2008) which is down 20% from a year ago
Cheap M&A The depressed NSE prices bring out good and bad banking opportunities.
– Good for anyone speculating on buying into a Kenyan bank. The Helios stake in Equity is priced as almost what it was when the deal was signed, while the CFC/Stanbic merger is worth ½ as much as it was a year ago.
– Bad for the Government who are hoping to raise funds from further sale of NBK and Development Bank of Kenya share. It also raises a question of how Co-op Bank IPO shares will be received i.e. if you enter a train going down hill and you want to go up hill, where will you end up?
Family Bank a recent stockskenya discussion could indicate that a listing of shares could happen soon.
EADB: sad tales on the East African Development Bank.
A half year after Diamond Trust , it’s now KCB conducting a second rights issue in the span of a few years. This comes at a time when international banks raising capital are facing more scrutiny than before.
KCB are back to ask their shareholders to chip in. In June 2004 they exceeded the 2.45 billion target and this time they are set to raise 5.54 billion ($86.6 million). How else is this issue different?
What has changed?
Then ; Now
June 04 : June 08
Focus – then Kenyan expansion & rebranding ; now East African expansion, Bank ESOP
New shares 50 million ; 222.1 million [but just 22.1 million in pre-split [PS] 2007 terms]
Price 50/= ; 25/= (actually 250 PS – pre-split 25% discount each time)
Market cap 8.7 billion ; 66.4 billion
2003 PAT 486 m ; 2007 2,974 million
Ratio 1:3 ; 1:9 (1 new share for 9 owned)
Result: oversubscribed; ? (Likely to be the same)
Cost of the offer
Budget:2004 offer – 104 million ; 2008 offer – 220 million
What costs more? : CMA approval fees – up 125% (13.75m), Transaction advisor – up 103% (8.1 million), PR/advertising – up 34% (17.4 m), Printing – up 30% (15 million), Reporting accountant up 26% (3.7m)
What costs less? Legal advisor down 58% (756,000), NSE fees down 50% (250,000)
Market players changed
NSE members 17:19
In Genghis Capital (new stockbroker?), Renaissance Capital, Bob Matthews, NIC (was solid) Afrika Investment (was Ashbhu)
Out: Francis Thuo, Nyagah, Solid, Ashbhu – stockbrokers
Morphed: Faida, Kestrel Standard Suntra (from brokers to investment banks)
IPO financiers: 2004 memorandum mentioned 10 banks and two building societies offering Rights Loans ; this time no mention as share loans are a touchy subject in 2008
Shareholders: Anchor shareholders – then and now : Government of Kenya (35%:26%), NSSF (1%, 7.8%), ICDCI (4.3%, 3.5%), Sunil shah, (2.06%, 2.33%) staff pension fund (4.12%, 2.32%)
Calendar: Record date 4/6, rights start trading 23/6, last day trade rights 11/7, last date to pay for rights 18/7, new share trade 15/8, [to stave dilution, investor accounts will be credited 10 days before new shares are listed]
Investment Decision: Advice on investing in KCB rights comes from the Nairobist newsletter.