Category Archives: Investing in Kenya

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.

Plane Moments: Mostly KQ

 

  • Precision Air:  Kenya Airways and it’s associate company, Precison Air Services are working on a commercial alignment with respect to pricing on joint venture routes. They have applied to Kenya’s Competition Authority for an exemption as the regulator does not allow two similar airlines to have the same ticket pricing. Read more on Precision Air in which Kenya Airways has a 41% shareholding.
  • Kenya Gets Protectionist:  Kenya is limiting the issuing of new licences for global airlines seeking to exploit the strategic Nairobi hub in a protectionist move aimed at reviving the dwindling fortunes of national carrier Kenya Airways. Transport Ministry Principal Secretary Irungu Nyakera said Kenya is doing what the US and the European Union are doing, limiting the frequency of Middle East carriers because they have realised they are killing their own airlines, leading to job losses.  
  • Tanzania is revamping its national carrier by buying new planes as part of plans to boost tourism and transport sectors.  The country received delivery of two Bombardier Q400 planes in September at a cost of $62 million and has also made initial payment for the purchase of a Boeing 787 Dreamliner, which is expected to be delivered on June 18.
  • Nigeria airline takeovers: The takeover of the nation’s biggest airlines, Arik and Aero airlines by the undertaker, the Asset Management Corporation of Nigeria (AMCON) may have exposed some management lapses in the private sector.. some of Arik’s missteps to include “starting off its international services with the gas guzzling ultra long-range Airbus A340-500s literally guaranteeing losses on its relatively short-range services to London, South Africa, New York and Dubai. It also bought 10 of the relatively cost inefficient Boeing 737-700s used mostly by short-haul, low-cost airlines like Southwest Airlines. It only has four of the more efficient and versatile Boeing 737-800s suitable for high-capacity routes such as Lagos to Abuja and Lagos to Port Harcourt, as well as regional routes to West and Central Africa.”
  • RwandAir will start direct flights to India’s commercial centre Mumbai on April 3…it also plans to start flights to Gatwick, London’s second-busiest airport, and to the US this year as part of its strategy to serve more global markets.
  • The CEO of apologized for customer frustrations  over the last few months.  They have since introduced a new introduced a brand new Bombardier Q400 next generation aircraft to further enhance flight schedule integrity.
  • Etihad Airways Engineering has signed an agreement with Kenya Airways to perform mandatory checks on its six Boeing 787-8’s between February and October 2017.  Etihad Airways Engineering is the largest commercial aircraft maintenance, repair and overhaul (MRO) services provider in the Middle East.

 

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

NSE Shares Portfolio February 2017

Comparing performance to a year ago, this portfolio is down 50% mainly due to shares sales, while the while the NSE 20 share index is down 28% from February 2016.

The Stable

Atlas ↓
Bralirwa (Rwanda) ↓
Centum ↓
CIC Insurance ↓
Diamond Trust ↓
KCB ↓
Fahari  REIT↓
Kenya Airways ↑
NIC ↓
NSE ↓
Stanbic (Uganda) ↓
TPSEA ↓
Unga ↓

  • In: None
  • Out: Barclays, Equity, Kenol.
  • Increase: None
  • Decrease: Diamond Trust.
  • Best performer: Kenya Airways (up 12% from a year ago)
  • Worst performer(s): NIC, CIC, Diamond Trust, NSE (all down ~45% from a year ago)

Summary:

  • Another quarter when everything in the portfolio is down. Sold lots of shares after the banking law change.
  • Unexpected Events: (1) The Nairobi Securities Exchange (NSE) was assessed as the  worst- performing stock market so far in in 2017 so far according to Bloomberg – down 7% since January 1. While many believe it is due to the upcoming Kenya election, Bloomberg analysts trace the NSE portfolio decline to the devaluation of Egypt’s currency by 48% In November 2016,  which resulted in some frontier market investors blocks switching over from Nairobi to Cairo.
  • Still unable to sell portfolio shares in Rwanda (Bralirwa) and Uganda (Stanbic)  – those markets are easy to enter, but harder to exit.
  • Looking Forward to: (1) Bank results in February 2017 (2)  launch of the long-promised and always-postponed M-Akiba bond – a mobile money treasury bond.

Bank Rankings Part 1: Kenya’s Top 10 Banks

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.

EDIT 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