For Online E-newspaper
The East African : Jun 14th 2015
56 JUNE 13-19,2015 BUSINESS, MARKETS AND FINANCIAL ANALYSIS THE MARKET WHISPERER EQUITY MARKETS (WEEKLY CHANGE IN BENCHMARK INDEX) NSE 20 Share Index Kenya 4,765.02 -0.40% (CUMULATIVE MOVEMENT) DSE All Share Index Tanzania 2,816.20 -0.92% USE All Share Index Uganda 1,978.00 0.15% RSE All Share Index Rwanda 135.86 -0.15% JSE All Share Index South Africa 51,988.78 1.03% NGSE All Share Index 33,621.75 Nigeria 0.10% DRC b≥eaks g≥ound, o≠e≥s banks capital ≥elief I t will be difficult to persuade anyone that there was more than serendipity at play in the turn of events that followed Equity Bank’s decision to buy a 79 per cent stake in Procredit Bank in the Democratic Republic of Congo. Two weeks after the in- tention was disclosed, the country’s Central Bank has bought into an innovation common in the developed world that has helped banks lend more without having to increase their capital to comply with stability guidelines. Through a partnership with the Africa Trade Insurance Agency, DRC has become the unlikely first country in Africa to offer banks capital relief. On Tuesday, DRC Central Bank Deputy Governor Jules Bondombe Assango announced that the capital required by banks to support lending would be reduced by half so long as the borrowing is secured through credit risk guarantees from the African Trade Insurance Agency (ATI). tral banks have until now not adopted this policy despite its being backed by the Basel Framework on banking supervision, which recognises guarantees as among the risk mitigation measures that qualify banks for lower risk weightings. “Without capital relief, lo- cal banks face a tighter fiscal environment and cannot lend at the same levels as their better capitalised international counterparts,” said Jef Vincent, ATI’s chief underwriting officer. The World Bank’s Multi- Select banks in the Democratic Republic of Congo, where Equity now operates, will now be required to set aside just 12.25 per cent as capital reserve. Pic: File This is how it works: In some African countries, commercial banks are required to keep a certain proportion of their equity — the capital reserve ratio — at the central bank as a hedge against bad debt. In DRC, the Central Bank requires banks to maintain a total capital to total risk weighted assets ratio of around 24.5 per cent. Backed by new legislation and the cover — ATI is only one of a dozen multilateral institutions including the Africa Development Bank allowed to offer zeroweighted risk guarantees — a bank will now be required to set aside 12.25 per cent as capital reserve for transactions that meet the eligibility criteria. This will free capi- tal for banks to lend more, meaning that ProCredit Bank, which has net assets of $26 million, can now advance up to $3 million more. This will replicate the practice in developed countries where the reprieve is offered to institutions covered by insurance companies with bankable credit ratings. Surprisingly, African cen- lateral Investment Guarantee Agency (MIGA) offers cover for political risk and sovereign defaults, leaving out corporate borrowers. ATI has been in discussions with Comesa central banks for such guarantees to be recognised and hopes the DRC model will be adopted in markets like East Africa, where regulators continue to demand higher capitalisation for banks, undermining their quest for lower interest rates. P≥ofessionals to move mo≥e f≥eely within the ≥egion EAST AFRICAN Community member states are moving closer towards realising free movement across the region of professionals in the financial sector through harmonisation of banking standards across the region. The Banking Certificate Pro- gramme, which is based on a study done by the University of Dar es Salaam School of Business, seeks to ensure commercial banks operate common standards across the region in terms of personnel, banking curriculum and quality of services. “This programme is meant to en- hance labour mobility and ensure that persons can work anywhere within the region,” John Konchellah, Principal Secretary in Kenya’s Ministry of East African Affairs, Commerce and Tourism, told The EastAfrican. The study was commissioned by the EAC Secretariat in March with a view to allowing mutual recognition of academic certificates across the region. The study is set for validation in Kigali later this month. The EAC Common Market Proto- col signed in 2010 provides for free movement of goods, labour, capital and services across the partner states. This would open up competition for jobs in business-related services such as advertising, architecture, accountancy, legal and computer services to all residents of member states. Plans are also under way for lawyers to start practising across In March, when EAC Secretariat commissioned the study 2015 borders without limitations following the drafting of a Mutual Recognition Agreement for lawyers that provides that the EAC member states settle on similar qualifications for legal practitioners. Law societies are also reviewing how legal fees are charged across borders as the initial step towards the setting of qualifications for their members to practise across the region. This will mean that EAC residents pay uniform fees for services rendered by lawyers and help in the movement of professionals across the region. Published at Nation Centre, Kimathi Street, and Printed at Mombasa Road, Nairobi by Nation Media Group, Box 49010, GPO Nairobi, 00100. Registered at the GPO as a newspaper. Nairobi Office, Tel: 3288000, 211448, 337710, Fax 214531, 213936. Dar es Salaam Office. Tel: 2119657/8. Kampala Office, Tel: 232771, 232772. Fax 232781 Download free QR Readers from the web and scan this QR (Quick Response) code with your smart phone for pictures, videos and more stories Conside≥ cultu≥e in business HAS BANCASSURANCE failed to deliver the cost savings and business growth that financial institutions hoped it would? A decade ago, the selling of insurance services in banking halls was touted as the magic bullet to increasing the penetration of insurance in the region beyond the one per cent level that obtained then. So strong was the conviction that Kenya’s Treasury was goaded to come up with laws to facilitate the emergence of what would be financial hypermarkets with banking, insurance and pensions all being offered under one roof. It says something of the model that it was not mentioned at all in any of the national budgets this year. Also telling is the purchase of a majority interest in First Assurance Bank by Barclays Africa, the latest in a line of deals where banks have opted to have an independent underwriting arm. The lesson from this is that not everything from overseas will work in our markets, that there is a need to consider culture when making business decisions.
Jun 7th 2015
Jun 21st 2015