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The East African : April 28th 2014
MONEY AND EQUITY MARKETS APRIL 26 - MAY 2, 2014 TOUGH STIPULATIONS Kenyan banks now faced with new regulations in regional markets South Sudan has demanded that fo≥eign banks inc≥ease thei≥ paid-up capital By GEORGE NGIGI Special Correspondent S ubsidiaries of Kenyan banks in the East African region are expected to come under pressure this year from new rules by central banks and a difficult business environment in the foreign markets. War-ravaged South Sudan, the most lucrative market for Kenyan banks with regional operations, has demanded that international banks increase their paid-up capital to $25 million. Kenya Business watch Tanzania’s CRDB Bank seeks to expand regionally Tanzania’s CRDB Bank seeks to earn a minimum of 3 per cent of its net income from its international operations by 2017. According to the bank’s business strategy for 2013-17, it is expected to get a foothold in East African markets, while enhancing its target market share of 5 per cent or more in Burundi during the period under review. The bank will open two more branches in Burundi and introduce agency banking, a mode of operation adopted by some East African banks including KCB and Equity. Home Afrika’s pre-tax profits decline 22pc in 2013 Kenyan property developer Home Afrika Ltd posted on Thursday a near 22 per cent drop in its 2013 pre-tax profit to Ksh183.46 million ($2.11 million), owing to reallocation of substantial revenue that was previously recognised as income to deferred income on the balance sheet. The Nairobi Securities Exchange-listed firm attributed the fall in profit to a restating of its accounts in line with International Financial Reporting Standards. Home Afrika said it was confident of a better performance this year due to the launch of various housing projects in the country. Commercial Bank and the Co-operative Bank have confirmed that they will be pumping more capital into South Sudan, and Equity Bank has doubled its investment to Ksh2.5 billion ($29.4 million). Compliance with the new regulations will result in more money being held up in a country suffering from waning investor confidence and the potential of business failure. The National Bank of Rwanda has also introduced a supervision fee, for all banks operating in the country, of 0.5 per cent of a bank’s gross income. “For banks that have a gross income above $29.4 million, the supervision fee will be calculated by applying 0.5 per cent on the first $29.4 million and 0.05 per cent on any additional amount above $29.4 million,” the regulation states. Kenyan banks with opera- tions in Rwanda are Equity, KCB, GT Bank (previously Fina Bank) and I&M. KCB will pay an estimated $76,000, half the profit before tax booked from the country, having earned a gross income of $15.3 million from the subsidiary that returned to profitability last year after a loss in 2012. Equity will pay $58,823. The subsidiary is yet to break, even having posted a loss of $1.7 A KCB banking hall in South Sudan. Picture: File million last year. The money remitted as a supervision fee is expected to increase as the subsidiaries grow older. KCB entered the Rwandan market in 2008 while Equity joined in 2011. Rwanda is one of the fastest growing economies in Africa and the world, with its low financial inclusion making it attractive to banks. The licensing fee in Rwanda is nearly double the $4,705 charged by the Kenyan regulator. There is no bank supervision fee in Kenya. Last year, the National The news flowing out of South Sudan is set to delay the entry of competition into the country’s banking sector.” Aly-Khan Satchu, financial analyst Bank of Rwanda posted a profit of $21.2 million, but its commissions and fees made a negative contribution of $247,058. Central banks rely on li- censing fees, penalties and fines to finance their operations. Uganda is facing restric- tions from the donor community over the country’s passing of an anti-gay law two months ago; the World Bank announced that it would withhold part of its aid. When donor funding stopped in 2012 due to corruption allegations against the country, there were defaults on loans and slow growth of credit in the country as many state employees’ salaries were delayed. Kenyan banks are consid- 49 PROFIT AND LOSS Equity Bank made provisions of $8.3 million in 2013, resulting in a profit drop from the unit to $3.3 million from $11.6 million in 2012. KCB operates 21 branches in South Sudan, which hold ering expanding in the less competitive regional markets to grow their performances. KCB and Equity have plans to be making at least 40 per cent of their income from the subsidiaries in five years’ time. “This capital will be in- creased in phases. By the end of March, we increased it by $5 million to $20 million, and by end of the year it will be increased to $25 million. By December 2015, this will be increased by another $5 million to $30 million,” KCB said in a statement about the increased capital requirement in South Sudan. The requirement could present an opportunity for Co-op Bank to increase its shareholding. “The Co-operative Bank of South Sudan is a joint venture between the Government of South Sudan, which holds 49 per cent, and the Co-operative Bank of Kenya, which holds $435.3 million in deposits, and Equity is estimated to hold $153 million. Co-operative Bank spent $17.6 million to open operations in the country last year; it posted a loss of $3.2 million in that period. 51 per cent, and together the two institutions will naturally follow the applicable law,” Coop Bank said. The new regulations will hamper the expansion plans of banks for regional markets. Local lenders including DTB, Commercial Bank of Africa and NIC Bank have shown interest in the Rwandan market. Family Bank, National Bank and Commercial Bank of Africa were considering entry into South Sudan before the violence erupted last year, forcing KCB to temporarily close four branches. “The news flowing out of South Sudan is set to delay the entry of competition into the country’s banking sector. Therefore, existing banks will enjoy spread expansion and even super-normal profits for longer,” said financial analyst Aly-Khan Satchu. Home Afrika chairman Lee Karuri at the release of the company’s financial results for 2013 on April 24. Picture: Salaton Njau IFC raises hopes by offering local currency bonds in Rwanda The International Finance Corporation’s decision to offer local currency bonds in Rwanda has raised African countries’ hopes of receiving local currency bonds from international lenders. The IFC has been in talks with the governments of Nigeria, Botswana, Kenya, Namibia, South Africa, Ghana and Uganda about localcurrency issuances. Africa may become the IFC’s biggest portfolio by 2016, according to Saadia Khairi, the corporation’s chief risk officer. Head of Kenya’s Co-operative Bank named CEO of the year The head of Kenya’s Co-operative Bank Gideon Muriuki has been named Africa’s banking CEO of the year by the Londonbased International Banker magazine, for turning around the bank’s performance from a loss making lender to a profit making one. He helped pull the NSE-listed lender from a loss of Ksh286 million ($3.3 million) in 2001, to a net profit of Ksh9.1 billion ($107 million) last year, and to fourth position by performance in the country.
April 21st 2014
May 5th 2014