Category Archives: bank service

Barclays Africa Macro Economic Report

Africa is poised for third wave of growth that could return it to the Africa rising heights that preceded the global financial crisis. These are some of the highlights from a report released by Barclays Africa in Nairobi on their macro economic outlook for 2017-2018.

Barclays Africa Chief Economist Jeff Gable said that global growth was 3.7% and is at its strongest in 5 years with the growth synchronised in all regions – US, Europe (strongest in a decade), Asia (recovering from 2017), and Latin America (coming out of recession). Global concerns include the politics of rage and nationalism waves, US political uncertainty (with President Trump),  China’s economic adjustments and fluctuations in commodity demand.

Africa has shown itself to be resilient and is receiving foreign direct investments (FDI) flows at levels not seen in a decade. South Africa gets the top share of FDI (followed by Morocco, Egypt,  Nigeria, Kenya), with most deals coming from the USA – 91 investments (followed by France, China, UK, Dubai) but with the largest source of funding, by far, from China ($36 billion).

Gable sees African countries as better able to address macro economic conditions this time around, such as through making infrastructure pay off by focusing on smaller affordable achievable projects (such as Uganda oil and Tanzania gas), diversifying commodity-driven economies, and managing foreign exchange and debt with the lessons learnt from the earlier dip. He expects that a majority of African countries will continue to grow at a faster pace than in recent years and that average growth will be 4% across the continent.

Some risk concerns are that not many African countries can afford to pay for what they are spending and they are exposed to continued outside borrowing at a time that Sub-Saharan Africa credit ratings are declining and there are discussions about uncertain macro economic policies from Angola, Mozambique, Nigeria, Tanzania South Africa, and Zambia as well as other discussions on political strains in Ethiopia, Kenya Tanzania, Uganda, Zambia, and Zimbabwe.  Another concern is that climate change will disproportionately affect Africa. 

Earlier in the day, Barclays Bank of Kenya Managing Director, Jeremy Awori cautioned on the year-old interest rate cap law in Kenya that had constrained private sector growth, and bank earnings He said banking industry earnings had shrunk 8% as at the third quartet of 2017,  compared to average growth of 15% in previous years and that private sector credit may have shrunk during the year.

Barclays Africa Macro Economic Report launch.

Other highlights of the Macro Economic Report:

  • Kenya’s credit rating has been stable since 2010, but Moody’s are now reviewing it for downgrade (due to to large deficits, high borrowing costs, and policy uncertainty). What concerns Moody’s is not Kenya’s debt size, but its replacement of long-term concessionary debt with short-term commercial debt.
  • Barclays Africa forward exchange rate forecast for the Kenya shilling to the US dollar is 106 at the end of 2018, 108.5 in 2019, and 110.8 in 2020.
  • Interest rate caps have been tried in many countries besides Kenya. The intent is the same, but Kenya’s Central Bank won’t be able to do anything about interest rate caps until next year.
  • For Kenya, tourism and agriculture (after the drought) are moving up, but manufacturing is lagging, and the Purchasing Managers Index (PMI) showed dramatic improvement in December 2017 after plunging to lows in October 2017 during the election season.

The annual Macro economic report was produced by the Barclays Africa research desk. It will be followed by another release by Barclays – of their Africa Financial Markets Index which is a survey of 17 African stock markets.

Bank fraud attempts during the holidays?

2017 has been a long year for Kenyans and while December brings several official national holiday rest days –  December 12 (“Jamhuri” or Independence) December 25 (Christmas), December 26 (Boxing) and the January 1 (New Years Day), December is usually considered a  slow month for business activities. This is because many employees take their annual leave days and combine them with the official rests for extended breaks during which they make annual trips with their families to villages, wildlife parks or to the Kenya Coast and other choice destination. This is one of the high seasons for tourism in Kenya, and while hotel rates and airline fares are two or three times what they are at other times of the year, these services are still completely sold out.

The long holiday season has also come to be associated with something else – bank fraud attempts. This was first seen with an odd discovery at KCB that customers could only withdraw amounts over Kshs 100,000 (~$965) from their home branch. i.e the branch in the town where the customers first opened an account, got a chequebook, deposited identification documents. This is a relic of banking, that goes back to the days before there was internet and before banks had network systems that connected branches and enabled customers to transact at any branch, in any town or at an ATM, internet, agent, or devices such as an app or mobile phone – unlike at home branches where managers and staff personally knew their customers and extended services to them. The sudden and odd rule was greatly inconveniencing, as it was introduced just ahead of the travel period when people would be traveling far away from their home branches – to other towns and even countries.

Bank staff later said the Kshs 100,000 limit was a temporary rule that had already been rescinded. It had been introduced with no warning at all, but it was apparently aimed at minimizing fraud attempts.

There were customer alerts at other banks too: Barclays  Bank sent a notice for customers not to share their PIN’s with anyone  – “DO NOT share your banking PIN or password with anyone via phone, email, SMS or even in person” – as their staff would never ask for anyone to share their PIN, while Bank of Africa (BoA) informed customers that banking services would be unavailable on the internet and through ATM’s that were not those of BoA.

Also Pesalink which had an advantage of higher transfer amounts than mobile money service providers, sent a notice to customers at  many of the two dozen banks that have the service about a reduction in limits that could be transferred, by almost 2/3 – at one bank, FCB, this went down from Kshs 1 million (~$9,650) per day to Kshs 350,000 (~$3,340), a temporary measure they said that would be restored after December 26, 2017.

Even the revolutionary M-shwari, a partnership between CBA and Safaricom, which just celebrated its fifth anniversary and which was about to roll out segmented pricing as well as fee rebates to customers who repay their loans promptly, had a 48-hour outage and other disruption over Christmas that left a fraction of its customers (17,700 of the 21.1 million customers) temporarily locked out of the savings and loan system.

And it was exactly five years ago that some Standard Chartered customers faced cases of mysterious account debits that the bank had to resolve after that Christmas break.

Will this fraud be an annual holiday practice? To expect reduced services every December to guard against fraud?  To be continued..

Citi’s outlook on Kenya Banking

Citi Bank has been producing some insightful research reports on companies they watch like KCB, Equity and Safaricom for their investment clients.  The latest one (Will it stay or will it go? — Awaiting clarity on the Banking Act) is an outlook on Kenya banking, based on the financial results that all banks released for the third quarter of 2017 which is exactly a year after Kenya’s Parliament passed a law, which the President then signed, that capped all Kenya banking loan rates at a maximum of 14% per year.

Citi’s findings:

  • Despite the Banking Act of 2016, Kenya’s leading banks maintain among the highest margins (8~9% NIMs) and returns (ROTE 20~23%) of any frontier market, coupled with strong capitalization, a stable currency and an improving political environment.
  • While there is little clarity on the future of the Banking Act, we acknowledge that many investors are interested in that “what if?” case if the legislation was to be amended, and hence provide a sensitivity analysis to gauge the upside from changes to the regulatory regime.
  • The Kenya banking sector is fairly concentrated with the top 5 banks controlling just under half of the assets (48%), KCB is the largest bank with a 14% market share, followed by Equity Bank and Cooperative bank with 10% each. A similar story for deposits, with the top 5 banks accounting for 50% of the market, KCB is the largest player with a 15% share, followed by Equity Bank at 11% and Cooperative bank at 10%.

The Citi report notes that KCB who grew loans by 9% in the third quarter despite the interest rate cap has a diverse client base that makes it easier for the bank to navigate the challenging environment. KCB has expressed interested in acquiring smaller banks like National Bank, as it also it pulled back from volatile South Sudan in May 2017, where it only retains a license.

Equity has put brakes on lending, with flat loans growth in the third quarter. The bank’s Equitel is now Kenya’s second largest mobile money platform after Safaricom’s M-Pesa, with 4% of customers and 23% value of transactions. Equitel appeals to customers as it has no internal charges. Meanwhile, mobile loan growth fell in the half year at Equity as the bank tightened lending standards, while KCB’s grew. Still, Equity disbursed 1.6 million mobile loans through Equitel in the first half of 2017.

The Citi report also notes that KCB lags Equity in the digital push, with mobile phones accounting for 70% of transactions at Equity and  57% at KCB. Elsewhere, 86% of all customer transactions at Co-op Bank are done on alternative delivery channels mainly mobile banking, ATMs, internet and agency outlets. Another finding was that the large banks have benefitted from the flight to safety by depositors following the collapse of three smaller banks in 2015-16.

The Citi Report looked at the Kenya banking interest rate caps under three scenarios with the first  being that the caps are extended even further to bank charges. The report mentions that the Kenya banking regulator, the Central Bank (CBK), had rejected 13 out of 16 commercial bank applications to increase charges, all pointing to tough times for banks in a slow loan growth environment. The second scenario was that the interest rate cap remains as is, and the third scenarios was that the caps are loosened by excluding some loan segments which will allow banks to lend at higher rates to riskier segments like SME’s, retail and micro-finance clients. However, Citi finds that the interest rate caps are not going away soon, and they are here to stay, probably for a few years. 

Finally, the Citi report (published on 19 November), rates KCB as a ‘buy’ with a target share price of Kshs 47 (current price on December 8 is Kshs 43), while they are neutral about Equity Bank which they value at Kshs 38.5 per share (current price is Kshs 41) as they think it is fairly valued.

Deloitte on African Art and Finance

The value of African art can grow tremendously over the next decade with investment and support from buyers both within Africa, and others who live beyond the continent, as well as from African art schools, governments, museums, galleries, art professionals and banks to stimulate and support more interest in African art.

These are some of the findings from the Art & Finance Report 2017 that was unveiled at Deloitte’s 10th Art and Finance conference at the Italian Stock Exchange in Milan this week and which estimated that the value of art owned by Africans collectors was $12.7 billion in 2016 and that it  could grow to $20 billion by 2026. This still accounts for less than 1% of the global art market currently estimated at $1.6 trillion with an annual turnover of $50 billion.

Some key findings of the report which looked at the global art markets include:

  • The art market should be self-regulated and there is great support for art to be part of wealth management offerings to customers at more private banks.
  • Banks need more specialists to properly value and manage art markets.
  • Art can be used as collateral, enabling art collectors and galleries to realize liquidity without having to make unfavorable sales to meet short-term cash-flow needs. See this on how to borrow against art.
  • Art as an investment class poses risks that are no different from others that banks manage and have to guard against, including vices like price manipulation, insider trading, money laundering and terror financing.
  • The top categories in the global art market are  “post-war & contemporary art”, followed by “modern & impressionist art”, “Chinese & Asian art” and ” jewels & watches”.

Some excerpts from the report on the African art market include:

  • International dealers and auction houses like Bonhams and Sotheby’s are seeing a gradual shift in the African contemporary art buyer base from mainly African art collectors to a more international and diverse group of art collectors.
  • London experienced a 12.5%  rise in African art auction sales between 2015 and 2016, with Bonhams controlling a 65% market share.
  • Sotheby’s London joined the African art auction trend in 2017 with its first auction focused purely on African contemporary art. It achieved total sales of over $3.6 million and 79 of the 116 lots were sold.
  • In 2017, record-breaking hammer prices recorded at auction for contemporary art were achieved by Nigerian artist Njideka Akunyili Crosby, whose work sold for less than $100,000 at auction in 2016. However, less than a year later, the artist’s piece “Drown” sold for a record-breaking US$1.1 million at a Sotheby’s auction and a few months after that, her 2012 painting “The Beautiful Ones” sold for US$3.1 million at a Christie’s London auction.

There is currently an inter-section of art, wealth, and technology with the possibility that bitcoin / block-chain can be used to assist banks and financiers with tools to help with transparency authentication, copyrights and ownership of art objects and there are already platforms such as Blockai, Ascribe.io, Chainmark, and smArtchain etc. in use.

The greatest demand for African art is currently from high net worth individuals in Nigeria and South Africa, which are the two largest economies in Africa. The report also notes that there is increasing demand from corporations such as the Nigeria Stock Exchange

Elsewhere In Kenya, Stanbic was working on investor management portfolio offerings that include wine and African art, while Nigeria has Access Bank in Nigeria. There are also other innovations coming up in African art and finance from leading banks and galleries in Kenya, South Africa and Europe.

Agency Banking in Kenya in 2017

Agency banking which has been around for seven years, is going to see a transformation of branch banking as banks roll out more products to alternative delivery channels.

Agency banking outlets extend banking services in Kenya.

According to Central Bank of Kenya statistics on the distribution of agents, 87% are with 3 banks – Equity Bank with 25,428 agents, Kenya Commercial Bank  with 12,883 and Cooperative Bank with 8,856 agents. Bank customers in Kenya transacted Kshs 734 billion in 2016, up from 442 billion in 2015).
Agents are big and deliver dozens of services that including SACCO transactions, payment of school fees, NHIF, KRA and utility bills – which bank customers can now do from their neighborhoods and which are accessible for longer hours than bank branches. While cash deposits and cash withdrawal are the bulk of the transactions, agents also processed Kshs 14 billion for payments of retirement and social benefits, and another Kshs 6 billion to utilities
Crucially, agents are the link between cash and the mobile banking/online banking worlds.

Last year Co-op reported that their branches did 15% of bank transactions with the rest being done on alternative channels, and yesterday Equity Bank disclosed that, this year, non-branch transactions are  91% of all monetary transactions – which are now happening on self-service and third-party platforms at variable costs – compared to the fixed costs of branches.

Equity is rolling out agency banking in Uganda, and the Central Bank of Kenya has had knowledge exchange partnerships with teams from Tanzania and Malayisa who were studying agency banking in Kenya. Equity CEO James Mwangi also said that Equity Bank agents share between Kshs 3-5 million in commissions every day as he pondered that the bank did not need new staff and could give probably back 70% of the physical space they currently have.  Their next step will be to digitize corporate banking to enable services to be done on alternative channels, the way retail banking has been done.