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Banks lose 1.3m loan accounts in 2 years

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CBK Governor Patrick Njoroge. FILE PHOTO | NMG 

The number of bank loan accounts dropped by 1.35 million to 7.15 million in the past couple of years, reflecting the slowdown in disbursement of loans in the wake of the September 2016 capping of interest rates, latest industry data shows.

Data from the Central Bank of Kenya (CBK) shows that banks lost 657,000 loan accounts last year, adding to the 695,000 loan accounts lost in 2016. The value of gross loans disbursed followed a similar trend having dipped by Sh114 billion to Sh2.15 trillion last year.

This means that thousands of prospective borrowers were unable to access fresh loans from banks even as thousands of maturing loans were paid without successful applications for new ones.

It was also clear that only 15.37 per cent of the total 46.55 million bank accounts at end of 2017 had taken loans. This is down from 18.9 per cent the previous year and the peak of 24.6 per cent in 2015.

The 2017 drop ended the pattern of consistent growth in loan accounts that had persisted since 2010 when the Central Bank of Kenya (CBK) started publishing the information.

Kenya Bankers Association (KBA) chief executive Habil Olaka said the data was the clearest confirmation that the rate cap has made loans cheaper, but not available to customers. He expects the trend to continue.

“This compounds the fact that going forward, availability is becoming scarce. If loans are maturing but not being rolled over or renewed, then the number of loan accounts will continue to fall over time,” he said.

“For the ones that were already issued and had to be adjusted to the rate cap price, the drop in numbers means that riskier customers can’t get fresh loans on this rate because they don’t qualify.”

The decline in the number of bank accounts was even as customers opened 5.42 million new accounts and deposited an additional Sh300 billion, pushing the sector’s total deposits to Sh2.9 trillion.

Mr Olaka said this was partly due to customers seeking higher returns on deposits as provided for in the rate cap laws.

Many banks directed fresh deposits to government securities instead of the private sector, arguing that the caps had denied them a chance to lend to individuals whose risk profile was deemed to be higher than what the law could accommodate.

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During the year, personal or household loan accounts, which account for over 85 per cent of loan accounts, dropped by 519,000 adding to the previous year’s to hit 1.14 million.

Households and personal account borrowing dropped by Sh42.43 billion last year from Sh584.55 billion in 2016, according to the data.

The agriculture sector, which many banks see as carrying the highest risk profile due to its dependence on erratic weather and poor book keeping, lost half of its 180,533 accounts in 2015 to 91,140.

The sector, which is the biggest contributor to GDP, recorded the first negative growth of 1.1 per cent since 2009, according to the Kenya National Bureau of Statistics data.

“Government needs to increase investment in terms of infrastructure to create enabling environment. This will de-risk the sector and lower the risk perception,” Mr Olaka said.

The list of sectors that posted a drop in loan accounts included trade (130,000) and real estate (2,700). Mining and quarrying, financial services, tourism, restaurant, hotels, building and construction also suffered similar fate.

Top banks such as KCB #ticker:KCB , Equity #ticker:EQTY , Co-operative Bank #ticker:COOP , Standard Chartered Bank #ticker:SCBK and Barclays #ticker:BBK booked declines in loan accounts – confirming Equity CEO James Mwangi’s statement in March that he was forced to be “really brutal a little bit” and deny riskier customers loans.

“We had to do real market play. So essentially we could only lend to those whose risk could be accommodated within our risk pricing. We didn’t want to pretend to be good,” he told investors in a teleconference call.

Gross non-performing loans (NPLs) rose 23.4 per cent to Sh264.6 billion, pushing the ratio of gross NPLs to gross loans to 12.3 per cent, up from 9.3 per cent.

This was mainly due to delayed payments from public and private entities, uncertainties due to elections and poor weather conditions, according to CBK.

Customers have been increasingly losing their commercial vehicles to the auctioneers’ hammer. KCB CEO Joshua Oigara said in January that the bank had auctioned more than 250 vehicles due to loan defaults, mostly due to delay in government payment to SMES.

“We are selling vehicles and I am sure the owners did nothing wrong. Most of them have not been paid for almost two years,” said Mr Oigara in January.



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Kenya listed among Sub-Saharan Africa countries with high potential for Islamic Banking

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NAIROBI, Kenya, May 8 – Kenya has been listed as one of the countries with a high potential for Sharia Finance, an Islamic banking model with several restrictions and principles that do not exist in conventional banking like interest fees.

Middle East, Africa, India, and Jersey Finance Director Faizal Bhana said Sub-Saharan Africa’s share of global Sukuk issuances is only a mere 2 percent, despite an Islamic population of more than 200 million people.

Sukuk are financial products whose terms and structures comply with Islamic law, with the intention of creating returns like those of conventional fixed-income instruments like bonds.

“When you are coming to Africa, the story is very different. Africa is home to 250 million Muslims in Sub-Saharan Africa. At the moment, the penetration for Sharia compliance finance across the continent is 21 countries providing Islamic Finance services,” he said.

Speaking to Capital Business, he revealed that the Islamic Finance industry has a compound annual growth of 11 percent since 2006, with assets worth multi-trillion shillings.

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“We need to look to all forms of financing. And Sharia compliance financing is one form and because of its links like sustainability and ethical, for government, it is an easy win,” he said.

He said there is a need for regulators to provide enabling legislation for Sharia finance services and more so for sovereign and corporate issuance of Sukuk.

The common practices of Islamic finance and banking came into existence along with the foundation of Islam.

However, the establishment of formal Islamic finance occurred only in the 20th century.

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Currently, the Islamic finance sector grows at 15-25 percent per year, while Islamic financial institutions oversee over $2 trillion.

Islamic finance strictly complies with Sharia law. Contemporary Islamic finance is based on a number of prohibitions that are not always illegal in the countries where Islamic financial institutions are operating like paying or charging interest, investing in businesses involved in prohibited activities like gambling.

Due to the number of prohibitions set by Sharia, many conventional investment vehicles such as bonds, options, and derivatives are forbidden in Islamic finance.

The two major investment vehicles in Islamic finance are equities and fixed income instruments.

 

 

 

 

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CMA okays Crown Paints’ rights issue to fund expansion

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Crown Paints head of sales Bhavesh Gandhi and CEO Rakesh Rao during the company’s launch of all-weather paints at the Trademark Hotel, March 1, 2020. [David Gichuru, Standard]

The Capital Markets Authority (CMA) has given the nod to Crown Paints Kenya Plc to raise Sh711.80 million from shareholders via purchase of additional shares.

The regulator, in a statement yesterday, said it had approved the firm’s bid to issue and list 71,181,000 new ordinary shares on the Nairobi Security Exchange (NSE).

“The rights will be issued on the basis of one new ordinary share for every one existing share,” noted CMA.

The additional funds raised will boost the company’s financial flexibility to navigate through a tough business environment brought about by the Covid-19 pandemic.

It would also boost the firm’s growth strategy according to the information memorandum.

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“The group’s management plans to use the rights issue funds to facilitate the development of new products, retiring of current facilities and funding regional expansion,” CMA said in a statement.

Wyckliffe Shamiah, the CMA chief executive observed that the disclosures made on the rights issue comply with the capital markets regulations and will enable investors to make an informed decision.

Mr Shamiah noted that the regulator had reviewed the application for exemptions from complying with Regulation 4 of the Capital Markets (Take Over and Mergers) Regulations, 2002 concerning the intention of the company’s major shareholders, who have undertaken to take up their full rights entitlements.

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“They are also willing to take more than their initial entitlements subject to availability during the rights issue,” said Shamiah.

Crown Paints is expected to make bi-annual updates to CMA on the use of the proceeds of the rights issue.

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Branch buys local micro finance bank

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The deal gives Century Microfinance Bank a much-needed lifeline. [Courtesy]

Branch International Ltd has acquired microfinance lender Century Microfinance Bank in a move that gives the financial technology (fintech) firm a stronger presence in the country’s financial sector.

According to regulatory filings published by the Competition Authority of Kenya (CAK), Branch has acquired 84.89 per cent of the issued share capital in the microfinance bank.

The deal has been approved by the market regulator.

“The Competition Authority has authorised the proposed transaction as set out herein on condition that the acquirer and the target will each maintain the terms agreed with the borrowers in respect of all loans existing in their loan books at the time of the acquisition,” explained CAK in a notice in the Kenya Gazette.

The deal will further give Century Microfinance Bank a much-needed lifeline, coming in the wake of depressed earnings due to disruption from digital lenders and recently, the Covid-19 pandemic.

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According to Central Bank of Kenya (CBK) data, the micro-lender recorded Sh348 million in assets as of the end of December 2019, a 19 per cent drop from Sh431 million in 2018.

The firm also recorded Sh326 million in liabilities for the year ended December 2019 with customer deposits sitting at Sh256 million during the period under review. The lender made Sh82 million in total income in 2019, the majority of it from interest on loans, fees and commissions.

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Brach International, one of the leading fintech players in the Kenyan market has over the years increased its user base across the region to more than three million.

The firm says it has disbursed more than Sh35 billion in loans, the majority of which it lent to users in its African markets in Kenya, Nigeria and Tanzania. In 2019, Branch secured Sh17 billion in the new financing and a partnership with Visa to issue virtual pre-paid debit cards to its users.

The acquisition of Century Microfinance Bank will allow the fintech firm to deploy more solutions to grow its digital and physical foothold in the Kenyan market.

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