Category Archives: ABSA

Kenya remains the third most attractive financial market in Africa

The third edition of the Africa Financial Markets Index report that was released in October 2019, found that Kenya had retained its third position thanks to industry efforts to improve opportunities for investors.

The AFM index by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) is a useful tool designed to gauge Africa’s readiness to fund itself and its growth plans. It reviews 20 African countries across six pillars of market depth, access to foreign exchange, market transparency, tax & regulatory environment, the capacity of local investors and macroeconomic opportunity and the legality & enforceability financial agreements.

Overall, South Africa remained in first place, topping four of the six pillars, while Mauritius topped the legal agreements measure and Egypt topped the macro-economic opportunity one.

Speaking on trends across Africa observed in the 2019 AFM Index, Jeff Gable, the Head Of Research at the Absa Group, said there were several exciting financial markets events across the continent this year. These included the first-ever sovereign blue bond by Seychelles to support marine projects, Nigeria selling a 30-year government bond that was four times over-subscribed, Uganda halving the withholding tax on government bonds from 20% to 10%, Zambia launching a primary dealer system and Ethiopia announcing plans to launch a stock exchange in 2020.

On the AFM Index 2019, Kenya, along with Botswana and Namibia, increased to above 50 in the first pillar of market depth. The value of bonds listed in Nairobi doubled from $8.8 billion to $17.5 billion, mostly due to sovereign issues. However there remained a need to have more active trading of bonds and equities, and Kenya has rolled out an M-Akiba infrastructure bond targeted at retail investors that they can access for just over $30.

Kenya came second behind Mauritius on the pillar of enforceability of market agreements. It also scored well for its new insolvency law which encourages rehabilitation of distressed firms, and its endorsement of standard financial master agreements (ISDA GMRA, GMSLA).

However, it lost the lead on the foreign exchange pillar to South Africa. While the country has built up high foreign exchange reserves, up from 4 months to 5.8 months of import cover, the International Monetary Fund (IMF) had reclassified Kenya’s exchange rate regime from ‘floating’ to ‘other managed arrangement.’  The AFM Index has continued to highlight the risk of rigid management of foreign exchange by some African countries and pushed for more flexible regimes.

On the third pillar of market transparency, Kenya’s tax code was found to be supportive, but the country had raised taxation on mobile cash transactions creating some uncertainty. There has also been some recent progress as, in the last few weeks, capital markets stakeholders have convinced the Government to retain the country’s capital gains tax at 5%, and set aside an amendment in the 2019 Finance Bill that had proposed to change it to 12.5%.

The country was also flagged for its capping of interest rates which had shrunk credit availability and weakened companies profitability.

Kenya’s Treasury Cabinet Secretary, Ukur Yatani, in a speech read on his behalf at a Nairobi launch of the report, spoke of the need for Kenyans to save and invest to fund economic growth. Even with the country attaining formal financial inclusion of 82%, up from 26% in 2006, more could be achieved through financial markets.

He said that the country had established a Nairobi International Financial Centre authority to attract capital to Kenya and with the movable property security rights in place, the government was now supporting the setup a Kenya Mortgage Refinance Company that would make it easier for banks to advance funding towards affordable home ownership.

He noted that President Kenyatta had declined to assent to the Finance Bill until Parliament reviewed the cap on interest rates which, evidence showed, had resulted in a negative impact on the economy. Kenya was one of the few countries on the index which saw bank non-performing loans go up, from 10 to 11.7%, last year. He hoped that Members of Parliament would now view the President’s determination as an opportunity to give a stimulus to the economy.

Jeremy Awori, CEO of Barclays Bank of Kenya said that the country had ranked favourably, rising from 5th, when the first AFM Index report was published in 2017, to 3rd in 2018, a position it retained this year. This was due to efforts by industry stakeholders and regulators who had also worked with the Capital Markets Authority to launch a 10-year master plan for the industry. He added that, after Kenya had come up with new regulations for exchange-traded funds, Barclays Kenya had launched the first ETF in the region – New Gold which had performed well since its introduction.

He said that, as Barclays transitions into the Absa brand in Kenya and across Africa, customers will not feel any change in products or services and that they were working to upgrade systems to ensure they remain accessible from anywhere in the world. He added that strong domestic financial markets were a cushion to economic headwinds and that Barclays would soon launch a new wealth and asset offering in Kenya.

Charles Muchene, Chairman of Barclays Bank of Kenya, saluted Paul Muthaura, the outgoing CEO of the Capital Markets Authority, who has led the organization to be recognized as the most innovative capital markets regulator in Africa for four years in a row.  He said that a new ATS platform,  introduced at the Nairobi Securities Exchanges, had broadened the capacity of traders, enabling them to do multiple transactions on the same day, while also supporting securities lending and derivatives trading.

Later, in speaking about the capacity of local investors, the CMA CEO spoke of the need to educate, and shift, more retail investors towards long-term gains from managed funds. This would cushion them from the tendency to speculate on quick returns from land, gambling, and pyramid schemes.

Geoffrey Odundo, CEO of Nairobi Securities Exchange, said they had held some positive engagements with the National Treasury to get more big government listings to the NSE. He also said that they now have an Ibuka program to nurture small companies to be more attractive for investments, adding that this was part of a plan to increase its equities turnover from 6% of the total market to 15% in a few years. The NSE now had 12 asset classes including equity and index futures launched earlier this year and had been voted the second most innovative exchange in Africa.

The 2019 AFM Index report can be downloaded here along with a databank summary of the different country rankings under each of the six pillars.

Absa and the Spirit of Highway Africa

My first trip to South Africa was back in 2006 to attend the combination of Highway Africa, and the inaugural Digital Citizen Indaba which was Africa’s first-ever major blogging conference.  Highway Africa, billed as the largest gathering of African journalists, was run by the Rhodes University’s School of Journalism and Media Studies. It was supported by the South African Broadcasting Corporation, South Africa’s Department of Communication, Absa bank, Multichoice, MTN, South African Airways, Sunday Times, among others.

So it was a pleasant surprise this month to encounter the spirit of Highway Africa and reconnect with those  pioneer conferences. This was at a data journalism masterclass, at Enashipai Resort, in Naivasha, Kenya. Absa has been sponsoring the data class that aims to assist financial journalists to report on complex financial matters since it was a part of the two-decades-long Highway Africa that is now on hiatus.

In 2019, the classes have been held in Uganda, Kenya, Zambia and  Tanzania. Four more countries will be covered in November. The program is done in conjunction with Rhodes University and is led by Peter Verweij.

The masterclass had themes of finding and scraping data, and also analyzing, mapping, and visualizing data for presentations that enrich stories. This was done using free tools and diverse data sets to infer correlations on subjects such as sub-Saharan African debt, sovereign ratings and financial inclusion.

There were also sessions about the ongoing plans at Barclays Africa which is rebranding to Absa in twelve African countries. Barclays has been operating in Kenya for 103 years, and the bank which is listed on the Nairobi Securities Exchange, remains one of the top-performing banks this year in terms of capital efficiency and returns to investors.

Top 200 Banks in Africa in 2018

For 2018, Africa Report ranked the top 200 banks in Africa by assets and revenue in a special issue of the magazine.

The list was topped by the Standard Bank Group South Africa (Stanbic) with $163 billion of assets. They were followed by First Rand and then the Barclays Africa Group with $94 billion of assets, that is rebranding to Absa. Others in the top ten were the National Bank of Egypt, Nedbank Group, Attijariwafa Bank of Morocco, Banque Misr of Egypt, Banque Centrale Populaire Morocco and the Rand Merchant Bank of South Africa.

Other notable banks in the list and their ranks are Ecobank Transnational (at number 17), the Commercial Bank of Ethiopia (number 19 with $17 billion of assets), the African Export-Import Bank (27), United Bank for Africa Group (30) and Guaranty Trust Bank (37). Also, Mauritius Commercial Bank (38), BGFI Bank Group (55) and PTA Bank, a Southern African development finance institution that is nominally based Burundi (at 57). Others were Diamond Bank (63), the Arab Bank for Economic. Development in Africa – BADEA (67), the Commercial Bank of Eritrea (86 with $3.3 billion of assets), CRDB Bank of Tanzania (105), and Stanbic Bank of Uganda (157).

Kenya banks that made the list were led by KCB Group at number 46, with $6.2 billion of assets. Others that feature were Equity Bank Group (59), Co-operative Bank (76), Diamond Trust (78) , Standard Chartered Kenya (100), and Stanbic Kenya (formerly known as CFC Stanbic) (115). Commercial Bank of Africa and NIC Bank who are merging were ranked at 123 and 131 respectively, while and I&M Bank is at number 132.

The report also has some general and country-specific reports that look at opportunities and challenges that banks in different countries face. These include Nigerian banks that were hit by oil price collapses and the rise in non-performing loans. Banks there like Diamond and UBA then restructured operations and invested in digital platforms like artificial intelligence assistants to enable customers to transact.

Ethiopia is profiled as an emerging economic opportunity after its political transformation under Prime Minister Dr. Abiy Ahmed Ali with its banking sector is described as one giant cat – the Commercial Bank of Ethiopia – with many kittens (seventeen private banks including Awash and Dashen)

Also while African governments want banks to offer cheap finance to citizens, many of them are themselves competing with private sectors in their countries  for funding from banks (e.g. risk-free loans to the Ghana government earn 17% for banks) while other interventions like interest rate caps in Kenya has driven millions of borrowers to turn to micro-lending apps using their phones.

You can order the 2019 ranking report here.

Societe Generale and Absa partner to grow across Africa

Societe Generale (SocGen) of France and Absa have entered two deals; one for a Pan-African wholesale banking partnership and another for the sale of selected SocGen’s businesses in South Africa to Absa. 

SocGen bills itself as the number one bank in French-speaking Sub-Saharan Africa with a presence in 19 countries, mainly in Western and Northern Africa, while Absa is in 12 countries mainly in Southern and Eastern Africa, as a rebrand of Barclays across Africa.

The partnership will be a non-exclusive one that will allow the banks to sell each other’s products and services. It will also extend to providing dedicated services to Chinese multinational businesses, leveraging on SocGen’s presence in China.

The second agreement relates to the sale by SocGen of its custody, trustee and derivatives clearing services in South Africa to Absa and will result in the transfer of clients, employees, and IT services. The deal enables Absa to re-enter the custody and trustee business. It does not include SocGen’s securities lending services which will end in March 2019 leaving SocGen in South Africa to operate corporate and investment banking.

Barclays is the fourth largest bank in Kenya while Societe General has a Kenya Representative Office in Nairobi. SocGen’s digital banking journey includes ventures in mortgages, insurance technology, and auto leasing. Another is  YUP, a mobile money wallet launched in 2017 after acquiring a stake in TagPay, that is now in four African countries and has 300,000 clients.

Barclays Kenya unveils AFMI 2018 – the Absa Africa Financial Markets Index

Barclays Kenya launched the second edition of AFMI 2018 – the Absa Africa Financial Markets Index, revealing performance improvements at a time of economic turmoil on the continent and also the addition of new countries to the index that now tracks twenty African economies.

In the time since Barclays launched the initial Africa Financial Markets Index in 2017, they have seen good engagement from policymakers striving to improve their appeal to investors through the AFMI 2018 index which measures countries across six pillars of market depth, access to foreign exchange, market transparency/regulations, capacity of local investors, macroeconomic opportunity, and enforceability of legal agreements. This year, three new countries – Angola, Cameroon and Senegal joined the index bringing the countries tracked to 20 and the country measures were also tweaked to include elements of financial inclusions and levels of investor education

The AFMI 2018 was again topped by South Africa, the most advanced financial market in Africa, followed by Botswana, Kenya, Mauritius and Nigeria. Kenya, Morocco and Seychelles all improved in the rankings while Mauritius and Namibia slipped slightly. Nigeria was credited for improving in its administrative efficiency and tax reforms. 

Jeremy Awori, Managing Director of Barclays Kenya said that emerging markets were under great pressure with currencies dropping, interest rates rising, political instability, falling commodities etc. and these highlighted how strong domestic financial markets could be used to cushion African economies from headwinds. He said that while  Kenya topped the access to foreign exchange pillar of the index, and had improved in the enforcement of  legal agreements, showing it was on a path to be a regional financial hub, there was still need to need to improve capacity of local investors, and grow the diversity of investor products. He added that Barclays Kenya was the first institution to list an ETF – an exchange-traded fund at the Nairobi Securities Exchange (NSE) and was also providing thought leadership on international swops and global master repurchase agreements.

Guests at the launch included Geoffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s Capital Markets Authority (CMA). Odundo said that while the 2006-08 IPO era unlocked retail investor capital, there was much more opportunity for investors to get good returns in the secondary markets including through REIT’s and that the NSE was currently piloting on offering derivatives. Muthaura spoke of initiatives to connect investors across African investors including a pilot exchange partnership between Kenya and Nigeria, and the African Securities Exchanges Association which was looking to enable trading links between the six largest exchanges on the continent.

Anthony Kirui, Head of Markets at Barclays Kenya said the country had an array of fixed income securities, but attention needed to shift to re-opening bonds as opposed to issuing new paper. He added that there was a need to create a primary dealership and a true OTC market and to also address the reluctance from local owners to list on stock markets. Muthaura said that one factor in the lack of new listings at the NSE was due to companies, who may have been candidates for listing to get new capital, now opting for the abundant and cheap funding from banks that were flush with cash in the era of interest rate caps

In East Africa, Uganda was stable (at No. 10) on the index while Rwanda and Tanzania dropped slightly, the former due to discrepancies in the implementation of rules and the latter due to lack of capacity of local investors. Ethiopia was at the tail end of the Index due to not having a security exchange and corporate bond markets, but that is likely to change as the country pursues reforms such as freeing the foreign currency exchange rate and planning for privatization of Ethiopian enterprises.

The AFMI 2018 report was done with the Official Monetary and Financial Institutions Forum (OMFIF) and can be downloaded from the Absa site.