Category Archives: NPA

Ghana bank reforms continue

Continuing banks reforms in Ghana, from back in 2018, the Bank of Ghana issued a new statement (PDF) on the state of banking in the country for the end of that year.

It stated that they had inherited a system with distressed banks that were not adequately capitalized, and which had high non-performing loans, and cases of insolvency and illiquidity – largely a result of poor corporate governance, false financial reporting, and insider dealings.

They noted that they had revoked seven licenses and arranged for those banks to exit in an orderly way and that after a recapitalization push, there were 23 banks with universal banking licenses in Ghana that had met the minimum paid-up capital of GHF 400 million (~$83 million) at the end of the year.

Excerpts:

  • The Bank of Ghana had approved three merger applications – (i) of First Atlantic Merchant and Energy Commercial banks, (ii) of Omni and Sahel Sahara banks and that of (iii) First National and GHL banks, as pension funds had invested equity in five other banks through a special purpose holding company called the Ghana Amalgamated Trust (GAT).
  • Another bank, GN Bank, was unable to comply with the capital requirement and its request to downgrade, from a universal banking license, to a savings and one had been approved. 
  • The Bank of Baroda has divested from Ghana following a decision by its parent bank which is wholly-owned by the Government of India. Subsequently, the Bank of Ghana has approved its winding down plan and allowed all the customers, assets and loans of Baroda Ghana to be migrated to Stanbic Bank Ghana.
  • Two other banks Premium and Heritage had their licenses revoked, and a receiver manager from PricewaterhouseCoopers appointed to take charge of the banks. Premium was found to have been insolvent while Heritage had obtained its license in 2016 on the basis of capital with questionable sources. All deposits of the banks were transferred to Consolidated Bank and the Ghana government has issued a bond to support the transfer of assets.

EDIT August 16 2019: The Bank of Ghana revoked the licenses of 23 insolvent savings and loans companies and finance house companies as well as 2 non-bank financial institutions.

The regulators had assessed the savings and loan and finance house sub-sectors and found challenges of low capital, excessive risk-taking, use of depositor funds for personal projects, weak corporate governance, creative accounting and persistent regularity branches and non-compliance.

The institutions are Accent Financial, Adom S&L, Alltime Finance, Alpha Capital S&L, ASN, CDH, Commerz S&L, Crest Finance, Dream Finance, Express S&L, First Allied, First African, First Ghana S&L, FirstTrust, Global Access, GN S&L, Ideal Finance, IFC, Legacy Capital, Midland, Sterling Financial, Unicredit Ghana and the Women’s World Banking Ghana S&L .

How to Get and Understand your Credit Score

Have you ever seen your credit report? It is often a requirement for job applicants in Kenya to obtain a “clearance certificate” from a credit reference bureau (CRB) as one of the half-dozen source documents to be considered in their vetting.

Kenya has three licensed credit reference bureaus; Credit Reference Bureau Africa (trading as TransUnion), Creditinfo CRB, and Metropol CRB. The initial law on credit reference means that every Kenyan is entitled to get a free credit score every year, but that is not quite the case.

I tried to obtain a report from all of them and here is a review of the three services, in order of ease of access.

3. Metropol Credit Reference Bureau says that you can get your first free credit report by dialing *433# and by paying Kshs 100 via M-Pesa. Prompts indicated that a payment was required and I entered and sent the amount via M-Pesa, but the payment transaction bounced back. Did this twice, and nothing ever came from Metropol and this needs a fix.

2. TransUnion: Credit Reference Bureau Africa was Kenya’s first credit reference bureau and now trades as TransUnion. Registration is Kshs 50/= for you to get your first free credit report. There are two ways of interacting with the service by SMS or by downloading an app.

The SMS route (number 21272) led to a prompt to pay Kshs 50 by M-Pesa. I did that and was led to a mini-menu to choose and receive more text messages. However, each SMS cost Kshs 15 – 19 each to proceed to the next screen and at some point, the TransUnion site advises that it is better to download the app and save on SMS transaction costs.

I did that for the TransUnion Niapshe app from the Google store through which one can request a credit report and a clearance certificate. After payment, it now says you will be getting the free report annually. Also that, as a subscriber, you will get FREE SMS alerts in case of a new enquiry by a lender, new loan information submitted, when a loan goes 60 days into arrears, as well as when a loan is fully repaid.

Since I had already paid the 50, I asked for the report to be emailed. It came behind a password-protected wall for me to enter my national ID (number) to unlock, but that did not work. I emailed a few times back to customer service and got an unlocked report in an email two days later.

TransUnion also sells “clearance certificates” at a cost of Kshs 2,200 (~$22)

1. Creditinfo CRB Kenya. On their site, you enter your name, ID, email, phone number and that leads to a sign-in prompt to pay Kshs 50. Did that, and within five minutes, got my credit report, a four-page PDF with a numeric score, risk classification and the number of credit queries in the past 12 months.

Findings from the Credit Reports

There are similarities in the two reports obtained from CreditInfo and TransUnion including:

  • They have some personal information, but the range and detail vary. TransUnion has more tries to add all your known locations and post office addresses. It reads information from your national ID including your home location.
  • They have bank borrowing – loans, credit cards, and bank loan apps (in my case Timiza from Barclays and M-Shwari from CBA/Safaricom).
  • Both collect information on borrowers such as loans that are performing and non-performing loans, fraud, bounced cheques, credit applications, length of credit history, number of disputed records, court disputes etc. 
  • While CreditInfo gives a score (presumably between 0-1000), TransUnion also does but also gives a band to show what its 0-1000 scores mean. The top band is AA being (700 to 1000), followed by BB (690-697), CC (675 – 689), and a few others up to the bottom (score of 1-489). There is also a star ranking of four kinds; with two dreaded categories of “***Adverse Action Reasons” and “**** Probability Of Default”.

Missing from the reports are:

  • Other loan apps – It appears that the many loan apps in Kenya are not subscribers, nor are they sharing their information with the CRB’s.
  • They do not appear to have savings and credit society (SACCO) loan data – despite the numerous ads that various SACCO’s have shared about posting loan defaulters to CRB’s.

Lessons for borrowers

  • Watch the use of your borrowing; while you won’t have a credit report unless you borrow, borrowing too many times, even if it’s small loans that you repay quickly, may be a red flag. Those emergency loans you take on an app stay on your report for five years after repayment.
  • The information posted on different dates can overlap and give conflicting data. But is it in your interest to update the database? E.g. it may have your old employment history or lack your latest address.
  • There is an attempt to collect all phone numbers and relations associated with your ID.
  • Microfinance institutions and SACCO’s are not benefitting from the credit reference data.
  • TransUnion sent an email with some explanations of transaction items – a key to explain e.g. Performing Account with a default history – a loan that you defaulted and later repaid/ you are still paying. Although updated as cleared or closed, the default information will remain in the credit bureau for 5 years from the date of final settlement. Also Non-Performing Account – a loan that you have defaulted (90 days) and is still outstanding. It impacts negatively on your credit score.

Summary

In 2014. banks requested a total of 1.6 million credit reports and that jumped to 6 million in 2015 and then declined to 4.9 million and 4.3 million in subsequent years. Meanwhile, individuals requested 33,000 of their own reports in 2014, 75,000 in 2015, 84,000 in 2016 and 131,000 in 2017. The Central Bank of Kenya attributed this to people seeking credit bureau clearances to contest for Kenya elections in 2017, but it is worrying that banks are requesting fewer new reports as they work to build profiles of existing borrowers.

Accurate credit scoring remains a holy grail in this economy where so many transactions are in the informal sector, and in cash. Credit reference is here to stay, even though many Kenyans don’t understand it or the consequences of not having good credit. Banks have now always been honest brokers, and they have been accused of not sharing information and offering good rates to good borrowers, but only posting defaulters into the credit reference bureau pool. My search proves that this is not the case, but the perception has led to a petition to Parliament to end credit reference bureau practices in Kenya over listing people for owing frivolous balances.

Still, there is no harm in getting your report and knowing what is out there about you.

EDIT: What does your score mean?  This article from South Africa is applicable:  

The different credit bureaux in SA all have slightly different ways of calculating your credit score, but in general, scores range from around 350 to 999, and what you should be aiming for is a score of 600 or more…at this level, you should not have any problem getting a loan, provided it is within your means to pay the monthly instalments…and the higher your score is above 650, the more likely you are to be able to negotiate interest rate concessions…

ARM Cement goes into Insolvency

The appointment last Friday of joint administrators for ARM Cement was a surprise for the shareholders of the cement company that is listed on the NSE. But by ARM going into insolvency, this will give the company an opportunity to continue operations while organizing its debt position.

ARM Cement had loans with Stanbic Bank Kenya, African Finance Corporation and overdrafts with  Barclays, Stanbic, Guaranty Trust and UBA banks. Maweni, its Tanzanian subsidiary, had loans with Eastern and Southern African Trade and Development Bank (PTA Bank), and Development Bank of South Africa and overdrafts with Stanbic and Standard Bank (Mauritius). The financial statements for the year prior to the ARM insolvency noted that the company was not in compliance with financial covenants  with AFC, Stanbic, and Aureos

The ARM Insolvency move comes two years after Britain’s CDC invested in the company and became its largest shareholder, while earlier this year the company insisted a process to sell its non-cement businesses to further reduce its debt position.

But the moves appear to have not been completely successful and there have been a raft of board changes this year that has seen the exit of Pradeep Paunrana the company CEO and founding family representative and other longtime directors of the company and the arrival  last week of Linus Gitahi (former CEO of the Nation Media Group), as the new Chairman alongside other directors from CDC . The ARM insolvency move apparently has the support of CDC.

EDIT August 19: Official  Statement: ARM CEMENT PLC (In Administration) 9 TH FLOOR, THE WESTWOOD, RING ROAD, WESTLANDS P.O. BOX 41908 – 00100 NAIROBI, KENYA

To all shareholders and Stakeholders,
ARM CEMENT PLC (IN ADMINISTRATION) -PRESS RELEASE. _____________________________________________
As the Board, we acknowledge that on 17 August 2018, ARM Cement PLC was placed under administration following an application by the secured lenders. The running of the Company has now been placed in the hands of PwC’s Muniu Thoithi and George Weru, who have been named the Joint Administrators of ARM Cement Plc.

According to the Kenyan Insolvency Act, Administration is a proceeding intended to maintain the company as a going concern. The powers of the Board transfer to the Administrator who owes its duties to the company, and to the court. This is in contrast with receivership, where the Administrator owes duty to creditors.

We support any orderly process that secures the long-term viability of the company and the future of employees, suppliers and other stakeholders and shall lend our support where called upon to ensure that this goal is realized.

By Order of the Board
LINUS GITAHI (Kenyan), PRADEEP H PAUNRANA (Kenyan), JOHN NGUMI (Kenyan), ROHIT ANAND (British) KONSTANTIN MAKAROV (American), SOFIA BIANCHI (Italian),ALIYA SHARIFF (Canadian),THIERRY METRO (French).
TEL: +254 202 692 978 (PILOT LINE) + 254 202 667 675/6 MOB: + 254 733 636 456 EMAIL: INFO@ARMCEMENT.COM WEBSITE: WWW.ARMCEMENT.COM

EDIT May 21 2019: The Joint Administrators of ARM Cement PLC, George Weru and Muniu Thoithi of PricewaterhouseCoopers announced that National Cement Company had signed an agreement for the acquisition of all cement and non-cement assets and business of ARM Cement PLC in Kenya as a going concern for a purchase price of USD 50M (~Kshs 5 billion). National Cement, a cement manufacturer and distributor under the “Simba Cement” brand, is a subsidiary of the Devki Group.

Absa Bank, through Barclays Financial Services and Barclays Kenya, acted as financial advisers to the Company, while Walker Kontos acted as legal advisers to the Administrators and Bowmans (Coulson Harney LLP) acted as legal advisers to National Cement.

Bank Closures in Ghana and Tanzania

August 2 saw bank closures in Ghana and Tanzania with interesting back stories on the institutions from regulators in both countries.

Tanzania: the regulator Bank of Tanzania (BoT) issued notices that covered two separate cases. BoT took over Bank M, closing it down for three months and appointed a statutory manager (in place of the directors and management of the bank) who will determine the future of the institution. The statement (PDF) read that this was done for reasons that “..Bank M has critical liquidity problems and is unable to meet its maturing obligations. Continuation of the bank’s operations in the current liquidity condition is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system.“. Two years ago, Bank M distanced itself from M Oriental Bank in Kenya.  

edit March 2019 Azania Bank has completed the acquisition of Bank M following the transfer of the banks’ assets and liabilities. The shareholders of Azania who include PSSSF (52%), NSSF (28%), EADB, and new shareholders including the National Health Insurance Fund (17%) agreed to the takeover and to recapitalise the bank. This is expected to be completed in 45 days with the bank opening in May 2019. –  via The Citizen. 

The Bank of Tanzania also published an update (PDF) on other banks whose licenses it had revoked in January 2018. Of these earlier bank closures, three of them had been given up to 31 July to increase their level of capitalization and as a result, the BoT had approved a decision to merge one of the affected banks – Tanzania Women’s Bank with another bank – TPB which will result in all its customers, employees, assets, and liabilities transferring to TBP Plc . Meanwhile, two of the other banks, Tandahimba Community Bank and Kilimanjaro Cooperative Bank managed to meet the set minimum capital requirements and have been allowed to resume normal banking operations.

Ghana: Meanwhile in Ghana, the regulator Bank of Ghana revoked licenses of five banks – uniBank Ghana, Royal Bank, Beige Bank, Sovereign Bank, and Construction Bank – and appointed a receiver manager to supervise their assets and liabilities as a combined new indigenous bank, called the Consolidated Bank. All deposits at the five banks have been transferred to the new bank and customers will continue banking at their usual branches which will now become branches of Consolidated. Also, all staff of the five banks will become staff of Consolidated, except for the directors and shareholders of the five banks who will “no longer have any roles”

The Bank of Ghana statement reads that .. “to finance the gap between the liabilities and good assets assumed by Consolidated Bank, the Government has issued a bond of up to GH¢ 5.76 billion. ” and goes on to give some details and background of the problems encountered at the former five, leading to the subsequent bank closures:

  • uniBank: The Official Administrator appointed in March 2018 has found that the bank is beyond rehabilitation. Altogether, shareholders, related and connected parties of uniBank had taken out an amount of GH¢5.3 billion from the bank, constituting 75% of total assets of the bank. Over 89% of uniBank’s loans and advances book of GH¢3.74 billion as of 31st May 2018 was classified as non-performing, in addition to amounts totaling GH¢3.7 billion given out to shareholders and related parties which were not reported as part of the bank’s loan portfolio. uniBank’s shareholders and related parties have admitted to acquiring several real estate properties in their own names using the funds they took from the bank under questionable circumstances. Promises by these shareholders and related parties to refund monies by mid-July 2018 and legally transfer title to assets acquired back to uniBank have failed to materialize.
  • Royal Bank:  Its non-performing loans constitute 78.9% of total loans granted, owing to poor credit risk and liquidity risk management controls. A number of the bank’s transactions totaling GH¢161.92 million were entered into with shareholders, related and connected parties, structured to circumvent single obligor limits, conceal related party exposure limits, and overstate the capital position of the bank for the purpose of complying with the capital adequacy requirement.
  • Sovereign Bank:  Subsequent to its licensing, a substantial amount of the bank’s capital was placed with another financial institution as an investment for the bank. The bank has however not been able to retrieve this amount from the investment firm with which it was placed, and it has emerged that the investments were liquidated by the shareholders and parties related to them. Following enquiries by the Bank of Ghana, the promoters of the bank admitted that they did not pay for the shares they acquired in the bank. The promoters of the bank have since surrendered their shares to the bank, while the directors representing those original shareholders have since resigned. The Bank of Ghana has concluded that Sovereign Bank is insolvent, and that there is no reasonable prospect of a return to viability.
  • Beige Bank: Funds purportedly used by the bank’s parent company to recapitalize were sourced from the bank through an affiliate company and in violation with regulatory requirements for bank capital. In particular, an amount of GH¢163.47 million belonging to the bank was placed with one of its affiliate companies (an asset management company) and subsequently transferred to its parent company which in turn purported to reinvest it in the bank as part of the bank’s capital. The placement by the bank with its affiliate company amounted to 86.86% of its net own funds as at end June 2018, thereby breaching the regulatory limit of 10%. Also, the bank has not been able to recover these funds for its operations.
  • Construction Bank: the initial minimum paid up capital of the bank provided by its promoter/shareholder, was funded by loans obtained from NIB Bank Limited. An amount of GH¢80 million out of the amounts reported as the bank’s paid-up capital and purportedly placed with NIB and uniBank, remains inaccessible to the bank – and the bank’s inability to inject additional capital to restore its capital adequacy to the minimum capital of GH¢ 120 million required at the date of licensing threatens the safety of depositors’ funds and the stability of the banking system.

Nakumatt Voluntary Administration

Troubled supermarket chain Nakumatt applied for voluntary administration to enable the chain to continue operations while freezing a mounting series of claims from banks, mall landlords, suppliers and other creditors as they seek options on how best to survive.

Nakumatt in administration

The move effectively ends the management of Atul Shah and surrenders  decision-making at Nakumatt to Peter Kahi of PKF Consulting. One of the first orders of business of the company in administration will be for Kahi to draw and publish a statement of Nakumatt’s assets and debts while separating bank ones, preferential creditors, unsecured creditors, and connected creditors. Up to now, the true and total debt has been a matter of speculation that could be up to Kshs 30-40 billion.

The Nakumatt statement reads that “the senior lenders are aware of Nakumatt’s financial position and are supportive of Nakumatt’s application for an administration order.  Further, Tusker Mattresses Limited has, subject to the Competition Authority of Kenya’s approval, undertaken to forge ahead with its investment in Nakumatt in connection with its proposed merger with Nakumatt.”

Past funding proposals prior to the Tuskys deal under consideration have not materialized. The insolvency law, which Nakumatt cites in its application for administration is among a series of new corporate laws passed in 2015 and is now focused on bringing troubled companies back to life. Aspects of the laws have been used at distressed companies including Uchumi and Kenya Airways.  Going into administration lowers the voting powers of banks, who are secured, and it gives Nakumatt power to deal with the unsecured debts.  The banks themselves were legally prevented from appointing an administrator as there have already been cases filed by some creditors asking for the liquidation of Nakumatt.