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The time is ripe for bank consolidation

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The time is ripe for bank consolidation

Too many small banks and the fragmentation is
Too many small banks and the fragmentation is why we don’t have a working active horizontal repo market. FILE PHOTO | NMG 

We have just witnessed the biggest merger in the banking sector’s history. Commercial Bank of Africa and NIC Bank recently published their last regulatory disclosures as separate banks. Next time, they will be reporting as one big bank.

Even within the broader corporate sector, I can’t remember – and I stand to be corrected – a merger of such scale. You can cite the case of Kenya Commercial Bank and the National Bank.

But strictly speaking, that was a government-directed move – and more or less – a case where two anchor shareholders of both banks, namely, the National Treasury and the National Social Security Fund decided to reorganise their shareholding in the two companies.

With the merger of CBA and NIC Bank, are we on the cusp of witnessing more market-based mergers and consolidation in the banking sector? We can only wait and see. Going by recent developments, we appear to be on a trajectory of more market-led mergers as opposed to policy-led mergers.Yet the most effective way by which we can disrupt the status quo in the banking sector is through policy-led consolidation and mergers. Market-led consolidation will take too long to make a meaningful impact. We want to turn our banking system into both an effective mobilizer of national savings and into critical agents of developmental lending.

Today, we have a system that is not good at long-term lending. We just have too many small banks that concentrate on providing short-term money to existing businesses. At a time when the economy badly needs growth, our banking system concentrates on funding consumption and in circulating existing wealth between existing businesses.

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The trend and global best practice you witness in countries with similar but more efficient banking sectors such as South Africa, Chile, Australia, Malaysia is consolidation into fewer strong banks. South Africa only has four large commercial banks. We must now confront the imperative of policy-led consolidation of banks. It will not be easy because the main tool for effecting policy-based consolidation, namely, raising minimum capitalisation requirements for banks, has proved politically difficult to achieve. Three years ago, former Treasury Secretary Henry Rotich, attempted to increase the minimal capitalisation requirement for banks from Sh1 billion to Sh5 billion. The proposal was shot down. We must keep trying. When banks are well-capitalised and when they acquire scale and size, you improve their capacity to provide long-term loans.

The decision by government to force the Kenya Commercial Bank to acquire the National Bank of Kenya made a great deal of sense. With such a big national champion, it will be easy to pilot the idea of introducing primary dealers.

In this way, you create a wider secondary market for government securities that can guide market interest rates in an efficient and predictable way.

If we make some of our big local banks primary dealers, we will have permanently changed the dynamics of trading in government securities. A big and well capitalised banking sector is what makes it possible for you to enhance the ability of your local banks to participate in big ticket items such as the projects listed under the Big 4 Agenda.

Big and well capitalised banks is how we will be able to position Kenya as a regional financial hub and support the proposed Nairobi International Financial Centre. How many of our banks-including the foreign-controlled ones, possess big enough balance sheets to finance the big ticket items listed under Vision 2030 flagship projects? When you look at the numbers, you will find that the average deal size for these projects is around $2.7 billion. Yet going by the single borrowing limits stipulated by Central Bank of Kenya’s prudential guidelines- none of our banks can singly finance any of the major flagship projects.

Our banking sector has never been more ripe for consolidation At 44, we have too many banks in this country. Worse, this sector is far too fragmented.

The big-tier banks don’t lend money to one another. That is why whenever we had a big IPO where liquidity moved to a few receiving banks, some of the smaller banks with no credit lines with the big banks faced crippling liquidity problems.

Too many small banks and the fragmentation is why we don’t have a working active horizontal repo market.

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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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