- 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.
2016 was an interesting, but also a challenging year, with a few key events happening that will alter the industry and future bank rankings going forward.
Who are the top banks at the end of 2016? We should start having their audited 2016 results published over the next eight weeks. But who will top the bank rankings for 2016, and why? (last year‘s bank ranking in brackets)
September 2016 numbers used
1 (1) KCB Kenya’s largest bank. growing at 5% year, going to embrace digital in a few weeks. KShs 480 billion in assets, 21.7 billion in pre-tax profit, with Kshs 372 billion of deposits and Kshs 332 billion of loans
2 (2) Equity Bank. Kshs 380 billion of assets and 19.5 billion profit. Deposits grew 15% in the year but they have put most of that in government securities.
3 (3) Cooperative Bank: Kshs 352 billion assets and 15 billion profit. Coop is using digital and agents to contain costs.
4 (5) Standard Chartered: Kshs 264 billion assets and 10.7 billion profit.
5 (4) Barclays: Still keen on growing in Kenya despite parent Barclays having to sell off the Africa unit. Growing at 10% a year, Kshs 264 billion assets and 8.7 billion profit.
6 (8) Diamond Trust: Still growing at 20%, probably benefiting from the fallout at Imperial. Kshs 230 billion assets and 6.2 billion profit.
7 (6) Stanbic: Shed the CFC part of the CFC-Stanbic name 10 years after the merger
8 (7) Commercial Bank of Africa. CBA was the the largest bank by customer numbers, thanks to M-pesa powered M-shwari, but loans are flattening. Kshs 211 billion assets, 5.4 billion profit.
EDIT 9 I&M Bank EDIT
10 (9) NIC bank. Kshs 156 billion assets, and 4.5 billion profits.
10 (13) Citibank: breaks into the top 10. Kshs 116 billion assets, and 4.1 billion profits.
Just out of the top 10, is
I&M bank and troubled Chase and National banks. It is important to note that all the top banks, led by KCB, Equity and Coop all embrace a mix of agency and digital/mobile phone banking as a basis for future growth.
$1 = ~Kshs 101
Yesterday Co-Op Bank announced their 2016, third quarter earnings, and with that we have the numbers in from the top 3 banks.
KCB: Assets: 480 billion, loans 332 billion, deposits 372 billion, pre-tax profit 21.7 billion
Equity: 380 billion, loans 221 billion, deposits 271 billion, pre-tax profit 19.5 billion
Co-Op: 351 billion, loans 226 billion, deposits 256 billion, pre-tax profit 14.9 billion
Just 24 hours apart, Equity Bank and Safaricom, which arguably have the most financial connections with Kenyan citizens, through m-banking, both made financial results announcements. Equity released their Q3 2016 results while Safaricom, whose year ends in March, was announcing their 2017 half-year results.
Safaricom has M-Pesa and also powers M-shwari at CBA and KCB M-pesa while Equity has Equitel a bank in a SIM card that gets around the barrier of the M-pesa. At the beginning of the year Equity had 8.8 million customers and the country’s largest bank – KCB had 3.8 million . They are surprisingly topped by CBA with 12.9 million customers, largely due to their partnership with Safaricom called M-shwari which allows savings and lending directly from a phone SIM card.
In the results this week, Safaricom reported pre-tax half-year profit of Kshs 34 billion derived from their 26 million customers and their CEO said that they process about 21,000 M-pesa transactions per minute and that 2 loans are processed every second. M-pesa revenue increased by 33.7% to Kshs 26 billion, and message revenue grew by 8.1% to Kshs 8.6 billion (with the increase in premium rate SMS revenue probably attributable to sports betting /mobile gaming)
They now have 50,000 merchants using their cashless platform called Lipa na M-Pesa, and announced a waiver on person-to-person and Lipa Na M-Pesa transactions under Kshs 100 (~$1) “We have done this to empower the people who support this company the most – the mama mbogas, the small businessmen, and the micro-agents who form our network.”
As at September 2016, Equity had a Kshs 15.1 billion pre-tax profit, an 18% increase over last year. The Q3 results also showed a second straight quarter of reduction in loans at the bank from Kshs 222 to 221 billion. Whether this is due to the recent interest rate-capping bill or an absence of lending opportunities, or an economic pullback is not clear, but the deposits raised by the bank went to government treasuries which grew by Kshs 21 billion in the quarter.
Equity reaffirmed an ongoing commitment to shift in customer service channels from physical branches to phone and agents. In the first year of Equitel (their telco), it did 151 million transactions in the quarter 142% more than the year before. Equitel is now the second largest move of mobile money in Kenya – at 14%, being M-Pesa (84%) but ahead of Airtel Money, Orange Money and Mobikash.
Equity Bank has also released a series of Eazzy banking solutions and tools including (an) Eazzy App, Eazzy Chama (investment group/SACCO management tool) and (an) EazzyAPI (for developers to build on).
Away from the two, the World Bank’s CGAP blog recently highlighted and compared several phone-based borrowing / m-banking solutions and apps available to Kenyans. They are easily accessible but unregulated, and they vary their terms, credit scoring methods, limits (which range from ~S1 to $10,000) interest rates, duration, and the ultimate cost to the borrower. They include; Branch, Equitel (Eazzy Loan and Eazzy Plus Loan), Jumo/ Kopa Cash, KCB-M-Pesa, Kopa Chapaa, Micromobile, Mjiajiri, M-pawa-Sacco, M-Shwari, Okoa Stima, Pesa na Pesa, Pesa Pata, Pesa Zetu, Saida, Tala, and Zindisha.
$1 = Kshs 101
Mobile banking has really come of age in the last few years. As Carol Musyoka wrote CBA has moved from about 64,000 accounts before M-Shwari to 12.9 million accounts as at December 2015 primarily due to this virtual platform (i.e. M-shwari) without any exponential growth in its branch expansion.
The ability to save and borrow money just by using a few clicks on your phone has been revolutionary. Over at Equity Bank, CEO James Mwangi talks about the application for loans that start at 1 am, with approval being done in a few hours and the loans being disbursed to borrowers phones at 5 a.m. – long before the bank branch doors open at 8 a.m.
The interest rate-capping bill (Njomo) which covers loans has been deemed to cover all bank loans, but this has seen different interpretations at the leading banks that offer dedicated phones banking services:
- CBA: Have insisted that the 7.5% fee that they charge is not interest, but a facility fee. This has been the case since M-shwari launched back in 2012. The are said to have issued Kshs 40 billion by the end of 2015, and across the border, CBA has got 60,000 mobile bank customers in Uganda in just two months in partnership with MTN (MoKash)
- Coop Bank: Disburse mobile salary advance loans at 1.16% and business loans at 1.2%. They don’t charge any facilitation fees and loan are payable in 1 to 3 months. (Simply sial *667# to apply for a #CoopMobileLoan). Coop are reported to be processing about 1,300 loan applications a day up from 250 per day before the rate cap. (70% of its new loan applications this month were requests for refinancing of existing loans). In 2015, the service had 2.7 million users, and 183,000 loans were disbursed.
- Equity: Adjusted all their loans, including credit cards and mobile bank loans to 14.5% (Previously “Eazzy Loan” and “Eazzy Loan Plus” products had an interest rate of between 2% and 10% per month) . The loans are said tp have a 1% facilitation fee
- KCB resumed lending their m-pesa loans after a three-week technical hitch. They have adjust loan rates to 1.16% with a one-off negotiation fee of 2.55% resulting in a total of 3.66% (including government excise duty tax) on loans. The loan duration has also been reduced to just one month – with no more 3 or 6 month loans.