Category Archives: bank service

Kenya Interest Rates Part IV – Coop Bank Leads

Ever since the banking amendment act was passed by parliament virtually all banks have announced reductions of interest rates to comply with the last KBRR – and all have reduced by 0.97% effective August 25.

Coop Bank branch

But yesterday Cooperative Bank (Coop Bank) was the first to reduce its rates to 14.5% (the Central Bank Rate plus 4%). In a statement from the bank CEO, this new rate will apply for all new loans or credit facilities. The modalities of the new law that was signed by the president this week, have not been outlined (such as if the rate is retroactive), but virtually all bank share prices have nose-dived over the last two days, with some banks pulling back on unsecured new credit facilities to customers.

Coop Bank is Kenya’s third largest bank, with a loan portfolio of Kshs 220 billion (~$2.18 billion).

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Capping Kenya Bank Interest Rates – Part II

Today Kenya bank CEO’s met with the Central bank governor. They again stated their opposition to the interest rate capping act from parliament in an innovative and free market country, and urged the urged the president to refer the bill back to parliament for more consultations. They noted that between 35% to 44% of new loans would be locked out due to their risk classification.

They also announced a raft of measures to assuage customer dissatisfaction with the banking sector including:

A commitment to reduce interest rates in line with the KBRR (The Kenya Banks’ Reference Rate which was reduced from 9.87% to 8.9%) on July 25, 2016
Cancellation of account closing charges.
A commitment to set aside Kshs 30 billion to finance small & medium enterprises, of which Kshs 10 billion would go to women and youth-owned micro enterprises – at not more than 14.5%. The allocation of each bank will be tracked and reported on a quarterly basis from November.
A commitment to classify customers at credit reference bureaus as low, medium and high risk and align interest rates to match such borrowers.
Re-launching the cost of credit web site to include bank loan data enabling loan applicants to easily compare bank products
Promoting alternative dispute resolution.

These are all things banks should have been doing, but were not. The statement also noted that the banks pay Kshs 69 billion per year in taxes (corporation, excise, PAYE) and that the new bill would reduce income to the government by at least Kshs 17 billion. But this is at a time when Safaricom alone paid Kshs 63 billion to the government as taxes and licence fees.

$1 = Ksh 101

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Banking is a Burden that Customers will Innovate Around

This is one of the many findings from a ground-breaking study of cross-border trading at Busia. And while banks worry about being out-innovated by telco’s, and telco’s worry about being out-innovated by apps, the truth is that it is the consumer who drives the innovation.

M-pesa was an accidental by-product of an airtime transfer product, and long before M-pesa, bank customers were doing free instant money transfers using the bank’s IT platform, thus bypassing money transfer giants that charged 10%. It is very likely that customers continue finding new ways to use banks and mobile money (such as M-pesa) in ways that the institutions are not even aware of now.

Biashara

The report – Borderland Biashara: Mapping the cross-border, national and regional trade in the East African informal economy (download here) also found that :

Going to a bank was a time-consuming chore. Few benefits were perceived, and an account was considered to provide little or no ROI except when required as a prerequisite such as by the local Coca-Cola wholesaler for registering as a new distributor.
Many considered bank accounts a trap for cash which could be put to better use as working capital, generating returns on investments in inventory.
Bank charges made no sense.
Teresia has six years under the shade of the same tree and, since devolution, has been paying daily rent in the form of market fees to the local county council. Yet this, along with her internal migrant background hampers her efforts to obtain a loan at the local bank. She’s neither local nor has a permanent address – and in their eyes, she’s high risk.
Traders, brokers, currency exchange agents, and transporters, all had anecdotes on the variety of arrangements available for cross-border transactions, with and without the use of a bank account. These arrangements were within the limits of the law, for the most part, and were made to account for the barriers thrown up by lack of interoperability between telco service providers and their networks.

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Capping Kenya Bank Interest Rates in 2016

This week parliament passed a bill to cap interest rates for borrowers at Kenyan banks. The bill has not been published online (as of now), but members of parliament prayed that it would to be assented to by the President.

In their Wednesday debate to pass the bill, they lamented that previous bills had not been signed by presidents in the past. Back in 2004, MP’s passed a similar bill, but which the President refused to sign into law. because it contained a clause known as the “in duplum rule”.

Before that there was also a banking amendment from the government that was also not implemented. There were later amendments proposed by the government, some of which were implemented (CBK got a deputy governor, and to vet the suitability of bank owners, banks got to share information with credit reference bureaus), but others were not (ban on bank charges in savings accounts, the in duplum rule – again).

On news of the bill passing through parliament, both the Central Bank of Kenya (CBK) and the Kenya Bankers Association (KBA) expressed their opposition to the new bill. The Central Bank expressed concern on the adverse consequences of capping interest rates while the KBA supported some elements of the bill (such as disclosure of all loan charges) but not the capping on lending rates and determination on the minimum interest payable to depositors – as the segment which will be most affected is Micro, Small and Medium-sized Enterprises (or MSMEs). Considering that MSMEs are Kenyan’s engine for growth, the Bill as proposed may curtail enterprise development, resulting in poor performance and unemployment.

Some tweets have also highlighted the role of the government itself in raising the cost of borrowing for citizens. Banks are in business, and they take money from depositors, and lend it out to other people and also to the government (when they buy bills & bonds). In 2015, while Kenyan banks had total loans of about Kshs 2 trillion, they also held about Kshs 672 billion worth of government bills and bonds – meaning that about one out of every four shillings lent to the public was borrowed by the government. The government is a risk-free borrower, so for a bank to lend to anyone else, it has to be premium above that, as there is a risk of default there.

On average, banks have about 40% of the deposits invested with government – and some banks with a ‘foreign outlook’ such as Bank of India, Habib AG, Habib Zurich, Citibank and Bank of Baroda in fact invest more of their depositors money with government, than they do as loans to customers.

$1 = Kshs 100

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Prepaid & Debit Card Usage

Have cards peaked? Statistics from the Central Bank (CBK) show that Kenya has 220,000 credit cards and 12.4 million debit cards, but that a decline in card usage can be attributed to increased usage of other payment channels like mobile money transfer services.

We all have ATM cards that are in effect debit cards. There are also prepaid-debit cards such as I&M (multi-currency), Bank of Africa (Toucan), Nakumatt (global) etc. They are good for making online purchases, payments as supermarkets, and sometimes for overseas travel payments.

Other notes about the cards:

They are not credit cards, but using prepaid/preloaded/debit cards badly may affect your credit history.
Many people didn’t realize what the difference was between credit and debit cards (which look the same) until companies like Uber (taxi) came about (which initially only accepted payments by credit card in Kenya)
Check that they work locally before you travel. Swipe the card as many times and in many places (supermarkets, local e-commerce, local taxi etc.)
Many new cards don’t allow users to re-set the pin to a number they are familiar with.
Using a card locally also enables you to see how the notifications work (email or SMS sent after each charge)
Watch you fees. Swipe as much as possible, and avoid going to the ATM, to withdraw cash as that may cost you about $4 (Kshs 400).
Ensure you get a statement from the bank to confirm the card usage charges.
Check with your bank or provider before you travel that the card will work in specific countries. Also, while they are not a credit card but it’s good to inform your bank ahead of time before you travel to a particular country where you intend to use a prepaid/debit card -as Via/Mastercard/AmEx/Verve may block transactions from unfamiliar places.

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Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: bank service

Kenya Interest Rates Part IV – Coop Bank Leads

Capping Kenya Bank Interest Rates – Part II

Banking is a Burden that Customers will Innovate Around

Capping Kenya Bank Interest Rates in 2016

Prepaid & Debit Card Usage