Commercial banks have grappled with a year of changing regulations, making them cling on government paper to stabilise their earnings.
Last year started with uncertainty over transitioning from International Accounting Standard (IAS) 39 to International Financial Reporting Standard (IFRS 9).
The new norm is forward looking as opposed to IAS 39, which was historical and this meant banks were to increase the level of provisioning and become stricter in calculating performing and non-performing loans. This put pressure on their capital.
The changes came at a time credit to private sector was also falling due to the rate cap law that was introduced in 2016.
As banks continued to seek a way out through layoffs, digitisation of services and closure of branches, the debate on removing the caps emerged.
In March, the National Treasury announced the push to remove the caps, which had been described by Central Bank of Kenya as “putting brakes” on the economy.
The Treasury then started preparing a consumer protection law to replace the legal caps on commercial lending rates. In May, Financial Markets Conduct Bill was published, proposing to abolish rate cap.
While Treasury said the law was meant to promote a fair, non-discriminatory market place for access to credit and provide uniform practices, Central Bank of Kenya (CBK) opposed the move saying it would make CBK a toothless dog.
At the same time, Kenya committed to International Monetary Fund (IMF) that it would makes adjustments to its economic policies including the possibility of scrapping the interest rates cap. This was part of conditions for getting Sh152 billion precautionary facility.
This lifted the confidence of banking stocks at the Nairobi Securities Exchange (NSE), #ticker:NSE leading to rebounding of prices as investors priced in the possibility of removing rate caps. However, this would later hit a snag in August after Parliament voted to retain the caps.
But in the process, MPs agreed to remove the legal requirement that lenders pay at least 70 percent of the CBK base rate on deposits. This opened room for banks such as Kenya Commercial Bank (KCB) and National Bank of Kenya to lower interest payments on deposits.
Lenders also faced new tax measures in the 2018/2019 budget statement that was presented in Parliament in June.
Treasury had recommended Robin Hood tax which required any cash transfers of Sh500,000 or to pay 0.05 percent tax.
This was contested in court by Kenya Bankers Association, arguing that the term ‘money transfer’ was vague and that they needed more time to comply since the computer software in use was not configured to support the charges.
With Kenya Revenue Authority keen to collect this tax, banks started putting customers on alert that they risked paying backdated taxes on all eligible transactions in case the suit was thrown out.
The law was later overtaken by events when President Uhuru Kenyatta, in his supplementary budget dropped it. He, however, hiked taxes on mobile money transfers.
With all these happening during the year, banks continued to deepen their stock of government paper, shying away from the public.
Up to end of September, the sector’s profits grew by 13.5 percent to Sh87.85 billion. Interest from government securities roses by 15.5 percent to hit Sh93.5 billion. This was in line with government security holdings rising by 15.1 percent.
The rise in income from government securities was much faster compared to interest from loans and advances, which grew by 0.4 percent to Sh212.2 billion.
Banks continue to battle rising non-performing loans (NPLs), reducing their appetite to lend to their sectors in the economy.
CBK governor Patrick Njoroge said last month that even though there was 4.4 percent growth in 12 months to October compared to September’s 3.9 percent, the year’s growth will not match CBK’s expectation.
“Our target for the year was seven or eight percent in 12 months to December. It looks like we will be below that,” said Dr Njoroge in Nairobi.
As many as six sectors such as trade, building and construction, real estate and consumer durables are in single digit percentage growth.
In October, NPL ratio fell to 12.3 percent from 12.7 percent largely due to decline in NPLs in trade, personal and household sectors but the governor says delays in payment remains of concern to banks.
CBK attributed October’s slight recovery in private sector credit on manufacturing, business services, finance and insurance and building and construction. However, for Agriculture, a key contributor to GDP, posted a negative growth of 5.7 percent.
Other sectors that booked a negative growth in credit were mining and quarrying (-12 percent) and transport and communication at negative eight percent.
This is despite loans to manufacturing, finance and insurance consumer durables and consumer durables growing at 14.9 percent, 9.1 percent, and 12.4 percent respectively, being above CBK’s overall target for the year.
World Bank pushes G-20 to extend debt relief to 2021
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.
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.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
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.
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.
Scope Markets Kenya customers to have instant access to global financial markets
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.
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.