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Bank profits up 19pc on cost cuts in rate cap era

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Central Bank of Kenya
Central Bank of Kenya. FILE PHOTO | NMG 

Eight top commercial banks that account for more than 90 per cent of listed lenders’ income shed off millions shillings in cost cuts even as their total income rose in the first six months of the year, helping them shrug off the impact of the rate caps and grow their profits, latest industry data shows.

KCB #ticker:KCB , Equity #ticker:EQTY , DTB #ticker:DTK , Stanbic, NIC #ticker:NIC , StanChart #ticker:SCBK , Barclays #ticker:BBK and Co-op #ticker:COOP banks reduced their total costs to about Sh82.5 billion or by over Sh700 million as total income rose 8.7 per cent to more than Sh151 billion in the half year. That action saw costs, relative to income (cost-to-income, CTI) ratio, fall to 55.7 per cent in the period under review compared to 59.2 per cent last year.

The decline in costs particularly helped the banks to increase their net profit by nearly a fifth compared to the same period last year.

“With the inception of the Banking (Amendment) Act 2015 in 2016, banks sought to mitigate the reduced interest income via various cost rationalisation measures. Thus, the Cost to Income Ratio (CIR) improved to 55.7 per cent in the first half of 2018 from 59.2 per cent in the same half in 2017,” Cytonn Investments says in their most recent analysis.

That was only possible with the alignment of employee head count to operational — another way of describing staff cuts — that also came with the closure of a number of branches.

Industry statistics show that listed banks cut the number of employees by 1,732 and closed 42 branches last year, leading to the lower operation costs in the first half of this year.

“Effort was made with regards to cost management that led to modest growth in operating expenses,” Sterling Capital said in a separate report.

Genghis Capital, another investment analyst, said that the banking sector had shown resilience on the Nairobi Securities Exchange (NSE) despite the challenges arising from restrictions on the movement of interest rates.

“We note that prospects for the banking counters are improving with the changing operating environment. There still exists some uncertainty with the interest rate cap ceiling, which is set to be maintained,” Genghis Capital said.

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The significant decline in costs relative to income arose because the listed banks are the biggest in the market in terms of assets, profitability and market capitalisation.

Commercial banks also cut provisions for losses arising from loans as they applied the new financial reporting rules – the IFRS 9– which requires them to provide for potential default on a loan at the point of its disbursement rather than after the material occurrence of a loss as was previously the case.

“New provisions in the first half of 2018 could have dropped due to more cautious lending and higher credit profiling standards under IFRS 9,” Genghis Capital said, adding that there is still reason to remain cautious about the large drop in provisions for majority of the banks due to the inherent subjectivity in computation of probability of default in arriving at a loan loss provision charge.

Analysts also reported that the banks had also commenced using artificial intelligence to profile clients, a move that is bound to cut their losses going forward. “We have looked at four key focus areas, which are regulation, diversification, technology and asset quality in this report. With a tighter regulatory environment following the capping of interest rates and adoption of IFRS 9, diversification of revenue, cost management and asset quality management will prove to be the key growth drivers for players in the banking sector,” said Ian Kagiri, investment analyst at Cytonn Investments.

The drop in provisions happened even as the nonperforming loans (NPL) remained elevated at 12 per cent, nearly the same level as December 2017 but higher than the 9.3 per cent at the end of 2016.

The analysts said they expect the new reporting standards to improve credit quality, cut the mountain of bad loans, and further improve the outlook for the lenders. “We expect asset quality in the sector to improve due to more stringent credit profiling brought about by IFRS 9,” said Genghis Capital. Treasury secretary Henry Rotich has promised to revisit the controversial rate capping provision with a view to returning it to the liberalised environment as was the case before September 2016.

Banks are expected to raise lending rates once the sector is returned to a liberalised regime. In the most recent amendments to the law, MPs retained the rate cap on lending rates but changed the floor on the deposit rate to allow each institution to set its own rate – thereby offering the institutions some breathing space and opportunity to maximise returns in the context of restricted lending rates.

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World Bank pushes G-20 to extend debt relief to 2021

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World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.

“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.

He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.

The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.

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People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.

For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.

Debt burdens, already unsustainable for many countries, are rising to crisis levels.

“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.

ALSO READ:Global Economy Plunges into Worst Recession – World Bank

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Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans

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The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.

“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”

According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.

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Tighter Reins on Platforms for Mobile Loans

The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.

Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.

Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.

SEE ALSO: Central Bank Unveils Measures to Tame Unregulated Digital Lenders

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Scope Markets Kenya customers to have instant access to global financial markets

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NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options. 

This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.

The Scope Markets app offers clients over 500 investment opportunities across global financial markets.

The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.

The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).

The platform also offers an enhanced client interface including catering for those who trade at night.

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The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour;  Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).

The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.

Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”

He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.

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