Shareholders of Kenya’s seven-biggest banks are set to get Sh34 billion in dividends, representing a 13.6 percent increase from last year. This is in a sharp contrast to the fate of borrowers who struggled to service their loans, going by an analysis of the lenders’ performance for the year ended December 2018.
The results data from seven of the eight tier-one lenders — as per the Central Bank of Kenya classification — shows that their cumulative dividend cheque will grow by Sh4 billion compared to the 2017 payout.
Commercial banks are by law supposed to release their annual results by the end of March, meaning that all the lenders have until Sunday to publish their 2018 results.
The banks’ dividend return is among the most attractive in the economy at present, outperforming the one-year Treasury bill which in 2018 averaged 10.5 percent yield.
The lenders also outperformed the real estate sector, whose rental yields rose by 9.5 percent in Nairobi and its environs, while house sale prices went up by 8.5 percent in 2018 as per a survey by realtors HassConsult.
The rise in the banks’ dividend payment matches their profit increase, having grown their net earnings by 13.6 percent or Sh10.2 billion to Sh85.3 billion.
The Nairobi Securities Exchange (NSE) #ticker:NSE listed lenders have also been under pressure from shareholders to give them a favourable dividend return (yield) at a time when capital gains on their stocks have been depressed.
Canaan Capital chief executive Rufus Mwanyasi said the increase in dividends payout is justified by the higher profits, but cautioned that the deteriorating quality of the lenders’ loan book is a cause for concern.
“This is a way of shoring up their share prices by enticing demand from investors through attractive dividend yields,” said Mr Mwanyasi.
“Asset-wise they have grown, as has their profitability, but the quality of the balance sheet has gone down as the non-performing loans portfolio keeps going up.”
The tier one banks that have released their results so far include KCB #ticker:KCB , Equity #ticker:EQTY, Co-operative Bank #ticker:COOP , Standard Chartered #ticker:SCBK, Barclays Kenya #ticker:BBK , Diamond Trust Bank #ticker:DBK and Stanbic. Only the non-listed Commercial Bank of Africa of the top-eight is yet to release its financials.
The big lenders control 66 percent of market share in the industry, and up to 80 percent of sector profits.
Non-performing loans among the seven lenders went up by 17.2 percent or Sh22.3 billion in 2018 to Sh152 billion, their results show.
Latest CBK data shows the non-performing loans ratio for the entire banking sector stood at 12 percent at the close of 2018, compared to 10.6 percent at the end of 2017.
This is an indicator that as the owners of the banks enjoy good returns, their customers are increasingly struggling to repay loans even with the rate cap law limiting the maximum interest rate at 13 percent.
Majority of the lenders have however managed to avoid a hit on their profits through increased provisioning for the bad debts, taking advantage of a one-off opportunity to pass their provisions through capital reserves instead of the income statement during the transition to the IFRS 9 accounting standards.
The top-tier lenders have therefore cumulatively cut provisions on the income statement by 30.4 percent or Sh8.3 billion (to Sh19 billion), which has played a significant part in the profit growth for the year and in turn the higher dividend payout.
Only Equity and Stanbic banks raised their provisions in 2018 among the seven who have reported so far.
According to Mr Mwanyasi, the lenders are likely to rely on cost-cutting this year — by turning to digital platforms — to absorb any potential hit on profit now that they have to provision for all doubtful loans through the income statement.
The higher profits have also been largely driven by higher investment in risk-free government securities.
The lenders increased their investments in the government paper by 9.7 percent last year to Sh700.6 billion, in turn seeing their interest earnings from the securities go up by 13.7 percent or Sh62 billion to Sh76.3 billion.
They grew their loan books at a slower pace of 3.6 percent or Sh57.3 billion to Sh1.63 trillion, and saw the interest income from loans to customers go up by a similar rate to Sh192.9 billion.
Non-funded income (NFI), which banks increasingly turned to in the wake of the signing of the rate cap law in August 2016, also under-performed for top-tier lenders last year. They cumulatively saw their NFI go up by just 0.9 percent in 2018 to Sh95.5 billion.
This was partly due to the shift to government lending as opposed to customer loans which attract fees and also commissions.
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.