Commercial Loan interest Rates 2016Interest on commercial loans 2016
A further banking close-the third in two years-led to the issuance of detention orders and a take-over, while non-performing loan s-(NPLs) gradually increased due to increased disclosures and a difficult trading climate. The results were also hampered by outside influences, such as the eruption of hostilities in Southern Sudan, where a number of Kenyan financial institutions, such as Kenya Commercial Banka (KCB), Co-operative Banka of Kenya (Co-op), Equity Banka and CfC Stanbic Banka, operated profitably.
However, the most significant obstacle for domestic banking was overcome when the authorities introduced an interest ceiling in August 2016 to boost credit, leading to uncertainties about short-term developments. An important driving force behind the continued economic development of Kenya's banking sector is its capacity to customize product offerings to the needs of Kenyans, which has contributed to the fact that the nation has achieved one of the highest rates of 75% fiscal integration in emerging markets.
At the beginning of 2017, 41 franchised commercial banking institutions were active in this industry - compared with 43 in 2015 - and the HF Group, formerly the Housing Finance Company of Kenya. There are still many Kenyan banking institutions compared to 44. By way of comparison: Nigeria has 22 banking institutions for 180 million persons after a period of transition, while South Africa has 19 banking institutions for 55 million persons.
Out of all Kenyan banking institutions, three are state-owned and 13 are held by foreigners, as well as domestic affiliates and branch offices of non-resident institutions. CBK also governs three loan offices, 13 MFIs and 77 FX offices. The number of banking outlets in the state had risen to 1523 by December 2015.
In October 2015, a georegional map study published by FinlandAccess estimates that 73% of the world' inhabitants lived within three kilometres of a point of contact for the provision of finance compared to 59% in 2013, one of the highest figures in a development state. Kenya's urbanization rates are only between 25% and 30%, well below those of many other threshold and border economies; Ghana and Nigeria, for example, have an urbanization rates of less than 50%, but much lower rates of economic integration.
Kenya's successful expansion of providing finance solutions to its residents is due in part to the predominance of office lending, which grew to 40,224 agencies at 17 commercial institutions by March 2016. 79. The 79. agent was responsible for the management of the business of the company, which was made up of representatives of the entire commercial industry and authorised to carry out essential commercial operations on it.
89 million in 2015, valued at KSh442.2. 2 billion ($4.3 billion), mainly comprising payments in hand and drawings. CBK announced in 2015 that 90% of bank brokers are enrolled in the three biggest present brokers, Equity Bank with 16,734 brokers, KCB with 11,948 brokers and Co-op with 7956. Continued high machine penetration with 2656 by December 2016 also helped to increase integration.
Kenya's bank industry has been relatively steady in recent years. 6 percent End of March to 61 percent 2 percent End of June 2016. Loan growth was most driven by financing activities, and in the second half of the year bank loans to MiFIs and SMEs increased by 42%.
As a result of liquidity issues and a slowdown in some segment operations, overall bank lending net lending to non-performing loan institutions (NPLs) rose from 7.7% of overall lending in March to 8 March in the first half of 2016. The CBK had announced by mid-year that the NPL quota would decline in the second half of 2016 due to better macro-economic conditions, but since February 2017 it has increased to 9.7%, partly due to tighter lending norms and weak lending outflows.
By the end of June 2016, the sector's overall performance had grown impressively, achieving KSh3. 5 trillion ($34.1 billion) between December 2014 and 2015. 27 trillion ($22.1 billion) and continued to grow in 2015, a time when they rose by 11. CBK traced the increase in deposit volumes back to innovation in technologies and a rising number of branch offices and agent banks, which facilitated the mobilisation of deposit volumes.
Accumulated non-audited earnings before taxes for the three month period ended June 2016 were CZK42. Most of this was due to investments in sovereign bonds and higher interest rates on loans. Thus the 2015 turnaround is reversed, where earnings before taxes in December 2015 were KSh 134 billion ($1.3 billion) versus KSh 141 billion in December 2015. 1 billion ($1.4bn) in 2014, when bank spending rose by 16%, versus 9% revenue increase.
As a result, the Nairobi Stock Exchange's listing of financial institutions has become more attractive. Kenyan public sector creditors saw a 15.8% improvement in per capita profit per share in the first half of 2016, above the 12th quarter forecast, according to Celesio's Cytonn Investments. 5 percent - versus 4.7 percent in the same time frame in 2015.
By December 2015, 24,458 mortgages had been granted, 11% more than in the previous year (22,013). Total value of mortgages receivable was ATS203. 3 billion ($198 million) at year-end 2015, up 23% from KSh164. Nearly 72% of mortgages were granted to five banks, and the mean loan amount had risen to KSh8.
3 million ($81,000) in 2015, compared to KSh7. In 2015, the median repayment term was 9.6 years, compared to 10 years. Unlike some other large sub-Saharan African bankers, Kenyan bankers still surpass equity regulation standards. From March to the end of June 2016, the Tier 1 ratios increased from 16% to 16%.
By 2015, the median solvency margin had risen from 37. There was an additional rise in reserve funds through additional investments and allocations of funds by commercial banking institutions to fulfil supervisory own funds and revenue reserve obligations from the year before. Over the course of 2016, the key interest factor (CBR) fell continuously from 11. 5 percent in February 2016 to 10 percent at year-end.
From 17 to 17, the discount rates of German commercial banking institutions rose. 8 percent in the first three months of 2016 to 18. 1 per cent in the second half of the year, which boosted net profit in the first half. In the second half of 2016, however, the key interest fell to 13.7%. Not surprisingly, the strong drop in key interest rates in September began with the entry into force of the Interest Limitation Act, which set the ceiling at 14% and a 7% floor on deposit rates on the basis of the CBR 10% interest rates in mid-September.
By 2015, the median interest rates on mortgages had risen from 15. 9 percent and 23 percent, according to the 2015 resident mortgage market survey. Total rates fell by 10 base points (0.1 per cent) from the end of December 2014. It did so despite CBK's attempts to lower tariffs through competitive and transparent approaches.
The Kenya Banking Reference Rates (CBRR) were one of the key instruments for this and were launched in 2014 following talks between the CBK, the Kenya Banker's Association (KBA), the National Treasury and the CSB. KBRRR replaces the basic loan ratio used by commercial banking institutions to value their product and is calculated on the basis of the mean CBR and the two-month floating mean of the 91-day Treasury Exchange Rates.
KBRRR is determined every six month and each bank can decide which margins to increase. Another of the initiatives, also launched in 2014, was the introduction of the APR, which allows better comparison of costs between different banking institutions. In recent years, the industry has experienced a higher level of activity in terms of concentrations, which in the longer run may indicate a possible need for further consolidations.
In recent years, the trend towards large banking institutions - as such with a more than 5% stake in the banking sector - has been notable. Seven companies - seven tier I financial institutions Equity Bank, KCB, Co-op Bank, Standard Chartered, Barclays Bank, Diamond Trust Bank (DTB) and Commercial Bank of Africa (CBA) - increased their overall weighting from 49.
9 percent in FY 2014 to 58. 2 percent in FY 2015. This is due to a number of additional determinants beyond performance: DTB expanded its asset base after Imperial Bank went bankrupt, while CBA expanded its asset base via its portable M-Shwari escrow accounts. In 2015, the Animal I Bank also had a larger profit contribution of 70.
3 percent of overall pretax earnings for the industry, up from 61.0 percent in 2014. As Tier I and Tier III expansion continues, however, Tier II and Tier III players see their shares of the markets shrinking. Big banking is also an important actor in the industry when it comes to providing finance. In part, this reflects the fact that many of these are localised.
"Between five and ten years ago, global banking led the industry in terms of prime factors such as wealth creation and return on investment. Now, the three largest banking institutions are locally owned Armenian banks," said Jared Osoro, research and politics manager at OBG's CBA. As regulatory control increases and the activities that shift markets to bigger banking groups become more concentrated, industry focuses on consolidating.
Other gratifying discoveries include the CBK's decision in November 2015 to introduce a freeze on new bank licenses. Mwalimu National, Kenya's biggest SACCO by asset, purchased a 51% stake in Spire Bank - formerly Equatorial Commercial Bank - for KSh1 in January 2015. In addition to a string of strategically important purchases over the past eight years, in June 2016 I&M Bank formalized its KSh 5 billion ($48.8 million) offering in the form of liquid funds and equity to gain Giro Commercial Bank controlling interest.
With 9000 clients serviced through seven branch offices and a net income of KSh 452 million ($4.4 million) at that point, the EIB occupied position 27 in the financial world. In mid-2016, I&M approved the acquisition of a 65% stake in Burbridge Capital, a UK based financial services consulting company, although the conditions of the transaction are not yet known.
With a view to strengthening EAC's on-going reintegration, Banque M became the first Tanzanian institution to be launched in the Nigerian domestic banking sector by acquiring a 51% interest in orientental commercial banking, which in December 2015 was 37th in terms of overall EAC penetration. In the meantime it has been renamed M-Oriental Commercial Ltd. "With the introduction of the interest rate cap, there has been concern about the value that a smaller institution could add to a bigger institution that already has large business.
Valuations for consolidations will be at significantly lower priceto-book multipliers than for last year's transactions," said Eric Musau, a senior research analyst at Standard Investment Bank, OBG. Another step in governance that could further promote merger and acquisition is to raise the necessary Tier 1 equity in commercial banking from KSh 1 billion ($9.8 million) to KSh 5 billion ($48.8 million).
National Treasury office clerk Henry Rotich said he was planning to implement an increased Tier 1 ratio in September 2016, but Parliament approved and followed the model in 2015, when the same ratio was implemented and refused. Faulu, which was recently taken over by Old Mutual, a Southern Africa insurance company, and Kenya Women Finance Trust - have a joint 80% joint MFI franchise.
In the last two years, several new new MFIs have been approved, among them Caritas Kenya, Daraja Microfinance Bank, Choice Mikrofinance Bank in 2015 and Maisha Mikrofinance Bank in mid-2016, raising the overall number of active institutions in the nation to 13. Until June 2016, deposit balances with financial institutions totalled CSh40.
Although there is an added benefit for MIFs that they are not directly affected by the interest barrier imposed in September 2016, many are considering whether they can expand their business and become a full-service bank, as was previously the case with the local Equity Bank and Family Bank, formerly Bausparkassen, both of which are now fully functional commercial entities.
CBK has acquired the repute of a strong and rigorous supervisory body for the financial services community and is committed to strengthening the solidity and robustness of the business while at the same time strengthening client protection. CBK's regulation system is strongly focused on increased openness and information gathering, improved robustness and innovative capacity of banks, and improved corporate governance as well as better accounting.
"We are beginning to recognize that the Federal Reserve wants a much better capitalized system, and we are beginning to recognize this with endeavors to increase the levels of integration. That is important for the industry," said Mussau to OBG. In the last two years, public regulatory activity has been at the forefront, which became even clearer in one of the CBK's review of sectoral KPIs.
CBK assesses the solidity of commercial banking institutions using the CAMEL (Capital Adequacy, asset q ulaity, managemen t qualit y, income and liquidity) system of ratings established in the USA. The industry was rated "satisfactory" in 2015 relative to a "strong" in 2014. CBK Banking Supervisor Gerald Nyaoma said that regulation reform included the improvement of the consolidation of the supervisory frameworks and the development of an enhanced systemic banking identification and monitoring frameworks.
Antifraud, anti-counterfeiting, riskmanagement and in-house control have also become objectives of the legislative reform of the Federal Central Banks of Germany (CBK), as information from the Department of Counterfeiting and Investigation has indicated that cases of computer, wireless and web-banking fraud are on the increase. For example, credit cardholder fraud may have been traced to "a low level of vulnerability to computerised transactions that have not been reconciled with efficient prevention and detection controls", as the Central Bank's "Bank Monitoring Report 2015" notes.
Consequently, in 2016 the provision of ICT and litigation audit oversight personnel and the recruitment of more personnel to mitigate risks was a central objective and part of the wider effort to strengthen control, audit and manage risks. These were not the only issues facing the CBK, and in 2016 it certainly piloted the regulatory authority, with a number of issues compelling it to act quickly.
The National Bank of Kenya, then the country's tenth-largest creditor, started an in-house auditing in March 2016 that resulted in CEO Munir Ahmed and five high-ranking executives being put on compulsory vacation and detention orders by the cops. Chase Bank, a medium-sized borrower, was released into foreclosure by CBK in April 2016 one working day after the publication of conflicting annual accounts relating to employee, director and shareholder lending, after reporting 2015 net loss of KSh 686 million ($6.7 million) against KSh2.
We have adjusted our credit lines to 13 KSh. Fees poured into cash dispensers and branch banks to make withdrawals, driven by alarming news disseminated on various different types of online feed. CBK and Kenya Deposit Insurance Corporation (KDIC) have been quick to clarify the issue bench and executive detention orders have been made.
KCB was named to the position of managers, and by the end of the last months branch offices had been re-opened across the nation, and Chase was allowed to resume deposit and loan operations from August 2016. The Imperial was placed under sequestration by the CBC in early 2015 after the bank's managers announced that there were "inappropriate financial practice justifying immediate corrective action" and that large-scale cases of corruption were uncovered.
KDIC arranged reimbursement to the depositors in July 2016. In April 2017, the institution continued to be in forced administration. This is not the first time that the regulatory authority has addressed this type of problem, and it has often been aggressive in improving the healthcare of the industry. CBK bankrupted Dubai in 2015, before it was liquidated, due to inside dealing, client money stealing, concurrent banks and payment failures that became known in a termination suit in 2012.
In 2016, too, the bank industry had to face other challenging years. Probably the most far-reaching was the adoption of the Kenya banking (Amendment) Act 2016, which set a binding upper limit for credit interest rates of four percent points - 400 bps - above the CBR.
The Commission also called for greater transparency of fees, while deposits rates had to be at least 70% of CBR. First, banking stocks were bought with a fall of 15. Large retail-base banking institutions such as Equity and Co-op, which mainly serve small and medium-sized businesses (SMEs) and subprime business, recorded a decline of more than 20%.
However, the bill, adopted to increase accessibility to finance, especially for low-income households and small and medium-sized enterprises, by lowering the costs of finance and protecting them from predatory interest rates, raised concerns among creditors. A number of savings institutions explained to depositors that they would stop providing deposits, while others would stop providing contingency and uncovered credits, even for cars.
Among those intended to benefit from the interest caps are those lending institutions to prime and legal persons, retail customers with security offered and alternate funding arrangements such as microfinance institutions not covered by the new CC. In January 2017, IMF Vice President Tao Zhang recommended that Kenya abolish the Act and cite possible long-term losses to the markets.
More and more, the upper classes are dependent on the latest technology advances such as wireless connectivity and on-line financial services, most of which are provided by non-banks. In Kenya, a huge amount of roaming cash has been used to achieve an unprecedented level of market penetration that other continental economies have tried to repeat. Since its introduction by the telecommunications provider Safaricom in 2007, the system has experienced huge expansion in Kenya.
Fiscal 2016 saw a 13.8% increase in revenues from services, 7.8% increase in the client franchise and KSh41 increase. In the 2016 financial year, mobile funds accounted for 23% of Safaricom's overall turnover, compared to 21% in the previous year. Safaricom's successful performance has benefited from a number of drivers - among them high levels of consumer activity, CBK's easier regulation and Safaricom's dominant position in the telecommunications markets - but above all it has been supported by the telecommunications industry rather than banking.
Meanwhile, a number of other companies have taken up the fight, such as Airtel, MobiKash, Orange, Tangaza Pesa and Equitel Bank, almost all of which have been started by wireless carriers or finance tech companies (see telecommunications chapter). According to the Kenyan Communications Authority, at the end of the second trimester of the 2016/17 fiscal year, 262.
CBK said it had more than 60 requests for new wireless financial solutions in 2015. As with the current service, the range is varied and ranges from credit cards, which allow consumers to make small savings and loans with their cell phone, to contingency payments for power.
CBK and the wider government's objective in promoting mobility and digitisation in banks is to minimise the cost and inefficiency of making payments. McKinsey's 2014 McKinsey survey found that 94% of Kenya's transaction volume was still in liquid funds. Web and wireless trading is still being hampered by "the low spread of consumer credits and debits in Kenya - a major obstacle to e-commerce," said Rutendo Hwindingwi, head of Sage, an East and West Africa based accountancy vendor, to locals.
However, the effort of the finance industry to update the technologies is not confined to end-user applications or end userservices. Banking has made significant investments in back-office management tools to lower overheads and increase efficiencies. By 2014, an average of 770 clients were serviced by one member of staff; one year later this number had grown to 972 clients.
In 2015, the bureaucracy of individual financial institutions was reduced by 11%, which reduced the number of jobs in the entire financial services industry by 2% to 36,200 by the end of 2015. Ten KENIAN institutions, among them KCB, DTB, Bank of Africa and Equity Bank, are active in other East African and Southern Sudanese states. There are 140 branch offices of local Korean bankers in Uganda, 96 in Tanzania, 55 in Rwanda, 33 in Southern Sudan and 9 in Burundi.
KCB and DTB are the largest cross-border banking institutions, each with 64 local offices. I&M Bank also holds a 50% stake in Bank One Mauritius; Prime Bank holds a 22nd stake in Bank One Mauritius. A 5% stake in First Merchant Bank of Malawi; and Equity Bank, which purchased a US affiliate in the Democratic Republic of Congo.
Our local businesses are expanding and in 2015 we had our own model named Sh205. Most of the overall bank earnings for the region in 2015 came from Southern Sudan. Since then, however, hyper-inflation and the policy stance have drastically altered returns, with the result that financial institutions report that 2016 was the lowest rate of economic expansion in seven years, a significant turnaround from the 2015 year.
The sectoral challenge may have decelerated temporary economic expansion, but the fundamental foundations for the Kenyan banking industry look robust and robust in the longerrun. The Kenyan banking system is rapidly expanding, responding rapidly, innovating and becoming better and better managed.