Category Archives: KCB

CBK Fines Banks over NYS Transactions 

The Central Bank of Kenya (CBK) has levied bank fines against five institutions over transactions relating to their handling of payments and movement of funds sent from the scandal-plagued National Youth Service (NYS).

The banks are Diamond Trust which handled Kshs 162 million, and was fined Kshs 56 million, Co-operative Bank which handled 263 million (and was fined 20 million), KCB which handled Kshs 639 million (fined 149.5 million), Equity moves Kshs 886 million (89.5 million fine) and Standard Chartered which handled Kshs 1.63 billion from the NYS, and which was fined Kshs 77.5 million.

The CBK statement read that the bank fines followed investigations into failures at the banks including; not reporting large cash transactions, not doing due diligence on customers, lack of support documents for large transactions and lapses in reporting suspicious financial transactions to the Financial Reporting Centre (FRC).

Notably missing was Family Bank that featured heavily in a prominent series of transactions of funds that originated from procurements at the NYS. It has been previously sanctioned and branch and senior staff are being prosecuted.

All the banks which handled NYS funds had been named earlier and the CBK statement added that this was not the end, with an additional group of banks set to be identified and investigated.

Kenya Banks – Super Profits Back?

The simultaneous release on Thursday morning of half-year results of Kenya’s three largest banks portrays a picture of the banks resuming their super profits streak even as the government looks set to repeal interest rate caps later this year.

But the results are deceptive in that the banks have all shown flat growth in loans, despite the growth in customers deposits which have increasingly been channelled towards funding government debt, at the expense of the private sector.

The results showed:

  • Flat growth in loans: e.g while KCB deposits are up by Kshs 40 billion this year, net loans are actually lower than December 2017. 
  • Decline in assets and capital – as the banks noted that the adjusted capital ratios were due to CBK guidance on IFRS9. 
  • NPA’s up.  
  • Growth in the diaspora and the East Africa region.
  • KCB is expected to complete  the acquisition of Imperial Bank later this year

James Mwangi CEO of Equity spoke of the bank’s total income now being ahead of where they were in June 2016 before the interest rate caps were set by Parliament, and that the June 2018  results were achieved despite losing 40% of loan interest income in Kenya. Interest rate caps which were reintroduced in Kenya in 2016 were pushed at a time when large banks were recording “super profits” and which parliamentarians attributed to them charging high-interest rates to borrowers.

Another factor has been cost efficiency improvements through digitization and a move away from fixed investments in brick and mortar. Equity also reported that 97% of customer transactions were done outside branches and these accounted for 55% of the value of transactions, and their CEO said that in future, branches will be for high-value transactions, advisory services, and cross-selling products.

With the result of the three, along with that of Barclays and Stanbic earlier this month, we have results of five of the seven largest banks in Kenya and none from the smaller banks. Last year,, the top -ten banks took over 90% of the industry profits. What does IFRS9 portend for the smaller banks?

Digital App Loans: Understanding Borrower Behavior

An Interesting conversation was started by a tweet by Francis Waithaka on the true borrowing of costs of app loans that hundreds of Kenyans take every day by making a few clicks on their phones.

It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.

The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya”  had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.

At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.

Habits of Borrowers 

  • There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
  • Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
  • They don’t understand terms and conditions of app loans and they don’t understand credit reference.
  • There are three types of borrowers: repayers (who pay loans on time), defaulters  (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
  • Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
  • There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
  • Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
  • Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
  • The simplicity of the loan application procedures matters;  too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.

Phone Types 

Download a loan app or use USSd

  • App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
  • Phones are mainly used for money transfer,  deposits, and withdrawals. There is little usage to get information or to browse the internet
  • 64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
  • Loss of a phone may result in a  borrower defaulting on repayment.

Credit Reference Bureaus

  • Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
  • One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
  • Not all fintech’s report loans to credit reference bureaus.

App loan costs

  • High loan/interest charges are not a concern as they are comparable to other informal money lenders

At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a  CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.

Bank Rankings 2018 Part 1: Kenya’s Top 10 Banks

2017 was a more challenging year for Kenyan banks, and borrowers due to interest rating capping, elections affecting Kenya’s economy, the crunch in South Sudan, while 2018 will be more interesting with IFRS9. Here is a ranking of Kenya’s top banks, and the rankings are by bank assets as at December 2017 – and compared with the previous years’ rankings (in brackets):

1 (1) KCB: Assets of Kshs 555 billion and a pre-tax profit of Kshs 27. 5 billion. Have 13 million mobile customers, and 57% transactions were done on mobile devices, 15% by bank agents and 10% at bank ATM’s. However, KCB did not roll out a new digital strategy direction in 2017 as earlier announced. Combined group assets were Kshs 646 billion (US$6.4 billion).

2 (2) Equity Bank:  Focused on fee income, transaction processing and treasury business over interest income, and their CEO said micro-lending will only resume after interest rate caps are lifted.

3 (3) Cooperative Bank.

4 (5) Standard Chartered Kenya.

5 (4) Barclays launched Timiza app in 2018 which should enable a big retail banking leap. It will also begin a process of rebranding to Absa.

6 (6) Diamond Trust: Bought Habib bank.

7 (8) Stanbic Bank (formerly CFC Stanbic)

8 (7) Commercial Bank of Africa: Now in five countries after using M-shwari to expand to Ivory Coast and Rwanda – where they recently acquired Crane Bank Rwanda.

9 (10) NIC Bank.

10 (9) Investment & Mortgages (I&M):  Assets of Kshs 184 billion, and pre-tax profits of Kshs 7.5 billion. They have fully absorbed Giro Bank and are now in Kenya Tanzania, Rwanda, and Mauritius. Group assets of Kshs 202 billion (US$ 2 billion)

11 (11) National Bank.

More rankings to follow. 

Barclays Timiza launched

On Friday, Barclays unveiled Timiza, its virtual banking strategy to extend its growth and services to the mobile space.

It comes after two other banks CBA (through M-Shwari) and KCB have also extended virtual services over Safaricom and M-Pesa to reach millions more digital customers and borrowers.

Timiza is immediately available to all M-Pesa customers (they are 27.8 million) who are either Barclays customers and non-customers. Timiza has a simple registration by dialing *848# or downloading the app from the google store and entering a national ID and phone number and within minutes of creating a new password, one can see their credit limit and start borrowing. The minimum loan amount is Kshs 50, and maximum Kshs 1 million, though it’s really up to 150,000 (~$1,500) depending on one’s credit rating and funds are immediately sent to one’s Timiza wallet (not M-pesa). For demonstration, a loan of Kshs 1,000 (~$10) for 30 days attracts a fee of 1.17% plus a facility fee of 5%, for a repayment of Kshs 1061.67

Besides being an easy and low-interest loan avenue, Timiza also offers a simple current account, savings account, fixed deposit account (term deposits of 1, 3, 6, 12 months – minimum Kshs 1,000. no top-up), group savings accounts, and channels for utility payments. One can also purchase insurance (a whole life cover policy) in the app.

A few months ago when M-Shwari was marking five years since its launch, CBA announced they would have variable pricing for good-repayers and a rebate on fees for people who paid loans within 10 days. These have not been done, but there are hints of such revisions in Timiza

Other Timiza Notes

The Timiza T&C‘s mostly relate to the use of personal information and clauses on resolving disputed. But they also have some interesting things:

  • There are no fees for transfers between Timiza and M-pesa
  • Barclays may suspend a Timiza account and credit if they discover it is being used for fraud or illegal activities, and they may also suspend them if they become aware that a customer is defaulting on other loans.
  • Unique from M-Shwari in that the loans can be rolled-over, and there will be a “roll-over” fee levied. However, the staff at Barclays branches have no authority to alter Timiza agreements. 
  • Timiza users will be eligible  for store finance at Barclays-selected merchants
  • One can select the period for repayment of a loan when applying for a loan  – maximum of 30 days

Barclays has 88 branches which are located in 38 of Kenya’s 47 counties and says they are responding to their customers preference for more mobile and internet banking channels. Barclays targets to get 5 million new customers in the next five years.

$1=Kshs 101