The shilling dipped against the dollar while the Nairobi Securities Exchange #ticker:NSE lost Sh110 billion in the week Kenya announced a phased reopening of the country from Covid-19 lockdown to stimulate the economy.
The value of all the stocks on the Nairobi bourse hit a three-month low of Sh2.02 trillion on Friday compared to Sh2.13 trillion on July 3 – ahead of the market factoring in news on the easing of the restrictions.
Analysts linked the NSE dip to foreign investors’ reduced interest in blue-chip stocks, arguing that most traders were fretting over the performance of market movers like Safaricom #ticker:SCOM and the big banks.
The high-net worth traders believe the effects of coronavirus will dim the earnings power of Safaricom’s M-Pesa and banks, says Sarah Wanga, head of research at AIB Capital, arguing that the investors are less optimistic of a quick turnaround with the reopening.
But merchandise importers and multinational companies stepped up purchase of dollars to meet obligations following the phased reopening amid the reduced inflows of hard currency, currency traders said.
This saw the shilling close the week at Sh107.10 to the dollar, compared with Sh106.61 on July 3 — moving above Sh107 for the first time since May 28.
Local traders expect the easing of travel restrictions and resumption of flights announced on July 6 to increase demand for products, triggering the need to import finished goods like cars and clothing and raw materials for businesses that have, since April, faced reduced cash flow.
President Uhuru Kenyatta on July 6 ended the cessation of movement in and out of Nairobi, Mombasa and Mandera.
He also allowed domestic commercial and passenger flights to resume operations on July 15 while international travel returns on August 1 in efforts expected to ease the pain of Covid-19 on the economy.
The pandemic has battered the economy and delivered mass jobs cuts with the Treasury projecting growth to slow to 2.5 percent this year from 5.4 percent last year.
But foreign investors who drive the NSE are less optimistic on the reopening of the economy, changing the fortunes of blue-chip firms like Safaricom, Equity Group #ticker:EQTY, KCB Group #ticker:KCB, Cooperative Bank #ticker:COOP and East Africa Breweries Limited #ticker:EABL.
The five counters influence the Nairobi bourse and account for nearly 80 percent of the value of all stocks on the NSE.
“Foreigners increased their net selling in the week. There is concern over performance of the market in general factoring in issues such as how companies will perform in the current environment,” said Ms Wanga.
“It may take a while for investors to start buying into the partial reopening of the economy given firms such as banks are still likely to see a continued rise in loan defaults and credit restructuring.”
Banks had restructured loans worth Sh679.6 billion or 23.4 percent of the total loan book by end of May due to the coronavirus economic hardships that have hurt the borrowers’ ability to repay.
The Central Bank of Kenya (CBK) and bankers are yet to comment on the potential impact of the loan restructuring on the lenders earnings this year.
Safaricom , KCB , Cooperative, Equity and EABL accounted for about 91 percent of the paper wealth erosion or Sh100.4 billion loss over the past week, underlining their dominance of the NSE.
The blue-chip stocks are a favourite of foreign investors who in recent weeks have sold their equity holdings.
Safaricom’s share price declined 7.2 percent to Sh27.50 in the week to Friday. This saw the company shed Sh86.1 billion of its market value.
Co-op Bank shed Sh3.81 billion while KCB lost Sh3.77 billion), EABL (Sh3.55 billion) and Equity (Sh3.21 billion).
“Foreign investors seem to be concerned about the M-Pesa revenue given the extended fee waiver on transactions of up to Sh1,000. First half numbers for M-Pesa may not be very impressive,” said Ms Wanga.
Safaricom looks set to forego revenues estimated at losses of up to Sh16.2 billion in the nine months to December after the CBK extended the waiver on mobile money transaction fees under Sh1,000 to the end of the year.
The Sh16.2 billion is equivalent to about a fifth or 19.1 percent of M-Pesa’s annual sales, underlining the impact of the pandemic on Safaricom’s earnings.
The free service aimed at cutting down on the handling of cash and the attendant risk of Covid-19 being transmitted from person to person.
The order also affected commercial banks, which had on March 16, removed charges for customers moving money between their mobile wallets and bank accounts.
The lenders are also set to lose billions of shillings with Equity Bank saying it is losing Sh120 million monthly due to the free service.
Ms Wanga reckons that Covid-19 data will continue to influence the performance of the NSE, especially if the cases spike with the reopening.
Kenya had confirmed 10,105 cases of the coronavirus with 185 total deaths by Sunday.
Mr Kenyatta said the State will review the cases after 21 days and threatened to return to lockdown if the cases rise sharply.
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.