Category Archives: CBA

Banking Week: Interest caps go and Stawi starts

Interest-Caps: This week saw the end of the era of capping of interest rates, that was seen as a populist three-year experiment to reign in large banking-sector profits.

The Government had tried to repeal this, without success, several times over the last few years, and bankers and the IMF have also been vocal about the unintended, and detrimental effects of the caps, on the economy.

Parliament stuck to its guns to the last minute, making farcical attempts to keep the caps in place. But as only 161 MP’s were present to vote, they could not proceed to over-ride the President, as they needed 2/3 of Parliament to be present. While some lawmakers have in the past argued that this high constitutional threshold (of requiring a vote of 233 MP’s) gives the President power to make laws, this has been upheld by the Courts.

The caps did not stop the “super profits” at large banks, but they did weaken smaller banks by limiting their interest-income growth. In the interest capped era, large banks found shifted their lending lend to a national government with an insatiable borrowing appetite, as opposed to small businesses, and when these credit lines shut off, small banks were hit with a rise of non-performing loans.

Stawi: This week also saw the formal launch of Stawi after a pilot phase in which that 80,000 had signed up for this banking industry response to the mushrooming of unregulated loan apps.

Stawi aims to promote savings and lending for small businesses. It is a bank account, opened and operated on phone, and owners can move money through M-pesa (for a flat fee of Kshs 42) and Pesalink. Stawi is hosted by the Commercial Bank of Africa, and, like with its M-shwari product, banking services are only rendered on the app, not at branches.

Users of Stawi have to be registered and in business for six months. New users are encouraged to make Stawi their primary account and to channel transactions through it to get a borrowing limit.

On downloading the app, one is assigned a loan limit based on credit their credit history. Stawi offers unsecured loans of between (~$292) KSh30,000 to (~$2,432) KSh250,000 that can be repaid between one to twelve months at rates of 9% per year.


CBK launches Stawi SME pilot credit facility

The Central Bank of Kenya has launched a pilot credit facility targeting informal unbanked traders in partnership with local institutions.  This will be through an app, marketed under the name “Stawi”, that will initially be managed by five banks – Commercial Bank of Africa, Cooperative Bank, Diamond Trust, KCB Bank and NIC Group.

The pilot phase lasts two weeks and will involve 3,500 traders without bank accounts, who have turnover of Kshs 30,000 to Kshs 250,000 (~$2,500) per month and who are at least six months old. To register, besides providing their ID details, traders will need a valid business permit and an email address to create an account – this is an unusual as mobile apps just require a national ID number to match with the phone number of the loan applicant.

The businesses will be able to borrow between loans of Kshs 30,000 to 250,000 (~$2,500). Loan charges are at an interest of 9% per annum, plus a facility fee of 4%, insurance fee of 0.7% and excise tax on the facility fee – all adding up to about 14.5%.

Other features of Stawi:

  • Loans are repayable between 1 – 12 month and borrowers can top up loans once 80% has been repaid. Loans are only disbursed through the app as will all repayments be done. 
  • The loan rates are not cheap, but they are mild, and this program is targeted at the unregulated lenders who charge as much as 300% p.a. There was a draft financial markets conduct bill formulated to protect consumers from such practices.
  • There are also transfer fees and Stawi customers can also link up with Pesalink which allows much greater daily transfer amounts (up to Kshs 1 million) than the mobile money wallets.  
  • For now, there is no Stawi in the Google store as the program is still in a test phase. (There is an app called Stawika that has no affiliation)
  • A second round of the pilot will target 10,000 other traders.

While trying to forestall the arrival of interest rate caps back in 2016, banks, through their umbrella Kenya Bankers Association committed to set aside Kshs 30 billion for lending to SME’s including Kshs 10 billion to micro-enterprises owned by women and youth and lend to them at no more than 14%. They also committed to rank borrowers by high, medium and low risk and to work to reward low-risk borrowers with low-interest rates. To date, the credit reference bureaus piling up data on loan defaulters which good borrowing records are ignored or not rewarded with lower interest rates.

NIC Bank shareholders approve merger with CBA at the 2019 AGM

NIC Bank shareholders met for their 2019 annual general meeting and approved a merger with CBA bank, creating Kenya’s second-largest bank (by customer deposits), a day after CBA shareholders had approved the same deal.

The merged bank will have about a 10% share of banking assets, deposits, and loans in Kenya. It will encompass the two groups serving over 41 million customers and their banking entities in Kenya, insurance (CBA Insurance and NIC Insurance), investment banking & stockbroking (CBA Capital, NIC Capital, NIC Securities), and regional subsidiaries in Tanzania (both banks), Uganda, (both banks) and Rwanda (CBA) and Côte d’Ivoire where MoMoKash is a CBA partnership with MTN and Bridge Group.

Group Managing Director John Gachora said scale is important in banking and that by merging NIC, which is known for asset finance and corporate banking, with CBA, which has desirable mobile banking and high net worth businesses, they would be the largest bank by customer numbers in Africa. CBA will be 53% shareholders in the merged bank.

NIC turns 60 this year, and in 2019, their focus will be on getting to Tier I ranking through the merger, and getting regulatory approvals after they had obtained shareholder approvals.  Directors also got approval to effect a name change (already under consideration) and the right to dispose of up to 10% of the assets of the bank without reverting back to shareholders. They will also create an employee share option program (ESOP) to retain key staff, and CBA, who already have an ESOP for their veteran staff (that owns 2.5% of that bank), will fold itself into the new incentive scheme. Other conditions of the merger include obtaining a waiver of capital gains and stamp duty tax in Kenya, approval of regulators in different countries, and approval of landlords and financial partners.

EDIT In May 2019, The Competition Authority of Kenya approved the merger of NIC and CBA banks on condition that none of the 1,872 employees of the merged entity are declared redundant for 12 months after completion of the transaction.

Bank Roundup: January 2019

The boards of NIC and CBA banks confirmed their plans to go ahead with a merger to create the largest bank in Africa by customer numbers. Serving over 40 million customers in 5 countries, the combined entity will have Kshs 444 billion in assets (~ $4.4 billion).

Currently, they are both at 115 billion of loans and have differences in deposits with 145 billion at NIC to 191 billion at CBA and customer numbers of 142,000 at NIC to 41 million at CBA. They had relatively similar customer numbers prior to CBA’s launch of M-Shwari in partnership with Safaricom. 

Going forward they aim to obtain shareholder approval in Q1, obtain regulatory approval in Q2 and have the new entity commence operations in Q3 of 2019. Currently, NIC has 26,000 shareholders and is listed on the Nairobi Securities Exchange (NSE) while CBA has 34 shareholders (20 individual, 14 corporations) including Enke Investments (24.91%), Ropat Nominees (22.50%), Livingstone Registrars (19.90%) and  Yana Investments (11.14%). The merger will be effected through share swaps that will result in NIC shareholders owning 47% and CBA shareholders 53% of the new entity whose shares will remain listed on the NSE.

MCB in Kenya:  Leading Mauritius Lender MCB Group has officially opened its representative office in Nairobi. The largest and oldest bank in Mauritius, with $12 billion in assets and a presence in nine countries, it had been licensed in Kenya back in 2015 and it will bank on its new office to gauge opportunities in the Kenyan market and build strategic relationships.

The 19th largest bank in Africa by assets, it is listed in Mauritius and has 19,000 shareholders. It has a strategic objective of growing its international footprint and expanding non-bank activities. It has 1 million customers, 3,500 employees and 55 branches but, as it was communicated at the launch, they have no intention of opening branches in Kenya or East Africa.

Ethiopia Bank summary: Asoko Insight gave a summary report of the Ethiopian banking sector, parts of which are only available to subscribers. While some foreign investment is expected in Ethiopia, the banking sector is already privatized with fifteen of the country’s eighteen banks all having private local owners. The state-owned Commercial Bank of Ethiopia is the largest bank in the East Africa region with 1,280 branches and earns 67% of the sector profits in the country.  It has revenue of $1.3 billion, while 11 (other) banks, have revenues of between $50 million and $500 million, suggesting a more concentrated market in terms of size.

Tanzania:  NMB bank has waived several bank charges for their customers from February 1 including account opening, monthly maintenance, transaction fees, dormant account reactivation, and internal transfers – all in a bid to promote financial inclusion in the country.

Meanwhile, several Tanzania banks have a series of new managing directors including NIC Bank, Akiba Commercial Bank and Bank of Africa Tanzania

Family Bank pled guilty in the NYS case:

Diamond Trust CEO questioned.

Bank Rankings 2018 Part II: New Entrants

Following an earlier ranking of the top banks based on their asset size at the beginning of the year, what are Kenya’s top banks likely to be, nominally based on asset size at the end of the year? In 2018, Interest rate caps and IFRS9 have had an impact on bank performance while the departures of Imperial and Chase banks were announced.

Ranking using September 2018 numbers 

1. KCB Group – Kenya bank assets of Kshs 594 billion assets (and group assets of Kshs 684 billion).

2. Equity – Kenya bank assets of Kshs 424 billion (and group assets of Kshs 560 billion).

* 3 CBA/NIC – combined assets of Kshs 425 billion (as at September 2018) – if an announced merger deal is approved and completed. CBA and NIC are ranked 9 and 10 by assets, and will leap-frog Cooperative Bank, Barclays Kenya, Diamond Trust, Standard Chartered Kenya, Stanbic and Investment & Mortgages (I&M) banks.

4. Co-op Bank Kenya – asses of Kshs 398 billion.

Other new and interesting bank changes this year; 

12.  State-owned National Bank is in search of a shareholder deal to boost capital.

15.  SBM Kenya. The State Bank of Mauritius completed a carve-out and rebranding of assets, staff, branches and customers of Chase Bank in August. For the third quarter of 2018, it reported assets of Kshs 75.5 billion up from 11.7 billion in January 2018. It now has customer loans of Kshs 12.4 billion, customer deposits of Kshs 53.6 billion, and government securities of Kshs 34.8 billion. SBM entered Kenya two years ago by taking over Fidelity Bank that had assets of Kshs 15 billion in 2015 for just $1. KCB also is expected to conclude a takeover deal for collapsed Imperial Bank in 2019.

39. Mayfair Bank was licensed to operate in June 2017 and began operations later in August. Mayfair now has Kshs 5.3 billion in assets and operates three branches in Nairobi and Mombasa.

41 Dubai Islamic Bank – Kenya (DIB Kenya) with Kshs 4.1 billion in assets was licensed in April 2017. It, is the third Shariah-only bank in Kenya, after Gulf African (No. 23 with Kshs 32 billion of assets) and First Community (No. 31 with Kshs 16 billion assets). DIB Kenya is a fully-owned subsidiary of Dubai Islamic Bank which is one of the largest Islamic banks in the world.

$1 = Kshs 102.