For Online E-newspaper
The East African : December 30th 2013
48 DECEMBER 28, 2013 - JANUARY 3, 2014 BUSINESS, MARKETS AND FINANCIAL ANALYSIS THE MARKET WHISPERER EQUITY MARKETS (WEEKLY CHANGE IN BENCHMARK INDEX) NSE 20 Share Index Kenya 4,951.06 0.76% (CUMULATIVE MOVEMENT) DSE All Share Index Tanzania 1,835.17 -0.64% USE All Share Index Uganda 1,493.00 -1.19% RSE All Share Index Rwanda 138.58 -0.09% JSE All Share Index South Africa 44,489.86 2.24% NGSE All Share Index 39,625.42 Nigeria - 1.86% Why do Tanzanian banks have such low sp≥eads? B anking spreads are a hot topic the world over. Bank- ers swear that bigger spreads reflect the higher cost of intermediation, while moralists see higher rates as a reflection of banks’ Shylock tendencies. But what do lower spreads re- flect? Is it a reflection of an industry’s maturity when bankers are able to get more information on the credit history of borrowers and thus charge lower interest on loans? Hardly! Tanzania for example, has a banking spread of 2.42 per cent compared with Kenya’s industry average of 11 per cent. Yet looking at the two coun- tries, Kenya is considered a more mature market in terms of both penetration and industry innovations. Kenya’s financial sector is the third largest in sub-Saharan Africa, after South Africa and Nigeria. The country opened its first credit reference bureau in 2010; Tanzania had its first in 2013. Again, Dar es Salaam has lagged behind Kenya in adopting such trends as agency banking. Spreads are supposed to cap- ture lenders’ perceived risk of borrowers’ ability to repay as well as reflecting inefficiency Kenya’s banking industry is said to be quite innovative. Picture: File in the banking system. But a look at the regional economies againlays bare the lie. There is therefore no definitive way to determine whether spreads are too high, too low, or just right According to the World Bank, Kenya’s high spreads can partly be explained by the con- centration of deposits with the country’s large banks. Kenya’s top six banks held 61 per cent of total deposits and accounted for 73 per cent of the profitability of the banking sector in 2012. At the other end of the spectrum, 21 banks with deposit Tanzania has a banking spread of 2.42 per cent bases of less than Ksh15 billion ($174 million) accounted for nine per cent of customer deposits and just 3 per cent of total profitability. For Tanzania, ironically, a similar concentration seems to have led to lower rates. According to a research note by Tanzania Securities, CRDB, FBME and NMB accounted for 54 per cent of all bank branches in the country. They also held 52 per cent of all customer deposits. Their huge deposit base gives the big banks advantages in that they can offer cheaper loans to customers, while also lending to small banks in the inter-bank market. This could explain why banks in Tanzania can pay an average of 8.5 per cent on deposits, while their Kenyan counterparts struggle to pay 3 per cent. As the debate in Kenya on whether the government should put in place laws that limit how much bankers can charge for loans rages on, the low rates in Tanzania coupled with findings in the latest World Bank economic report on Kenya that says more than half of the spread charged by the country’s banks is profit is likely to raise more questions than answers. Regional aviation indust≥y: One step fo≥wa≥d, two back THE REGIONAL aviation industry this month took the proverbial one step forward and two steps back.Jetlink and Jambo Jet — KQ’s yet to be launched low-cost carrier — had their operating licences renewed, while Air Tanzania came off a 20-year break to resume flights into Burundi. But the good news did not last long. Ethiopian Flight 787 crash-landed at the Arusha Airport in Tanzania, while a 737 operated by Nova Airlines had an accident at the Juba International Air- port. Then, following the coup in South Sudan, KQ and Fly540 temporarily suspended their flights into the country. The oscillating fortunes aside, the new licenc- es and resumption of flights into Burundi offer hope. Burundi lacks a national airline and is one of the most underserved aviation markets in the region due to both its size and location. The distance between the two capital cities of Bujumbura and Kigali is 300 km and thus airlines opt to fly into Kigali rather than have separate flights into Bujumbura. Thus, the resumption of flights by Air Tanzania is a welcome move. The renewal of the licence for Jambo Jet en- sures that the airline’s planned launch in the first quarter of next year remains on schedule, barring any unforeseen developments. Jetlink has been grounded since November 2012, weighed down by debt, but has also received KCAA approvals to resume operations. The airline says that it will be ready to fly again in quarter one 2014 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 EABL to cont≥ol its spi≥its EABL WANTS more control over its associate companies. Last week, the company said it was preparing to acquire the majority stake held by its parent company, Diageo, in a Kenyabased spirits firm. The deal will see EABL offer Diageo shares or cash in exchange for the 53.68 per cent stake held by Diageo in United Distillers Vintners (UDV) — giving the regional brewer full control. The purchase is good for the company, given that spirits are the fastest-growing market in the region. But shareholders will be concerned about the dilution impact from a share exchange and additional leverage in case of debt, all of which could have potentially negative consequences given EABL is already significantly leveraged. Analysts at Standard Investment Bank say it could be that Diageo is seeking to raise capital for its global expansion strategy, which means that debt to EABL may also be subject to conversion to local currency or pay down.
December 23rd 2013
January 6th 2014