By Rafiq Raji, PhD
Increasing foreign interest, hopes up for failed banks,
Regardless, Kenyan banks are looking to spread their wings. With Ethiopia beginning to open up on the back of reforms by youthful prime minister Abiy Ahmed, for instance, KCB plans to join forces with a bank there to exploit opportunities in a market with a population twice that of Kenya; according to Reuters in July. KCB could instead choose to expand its current representative office into a bigger standalone business, however. In another vein, Stanbic Bank has gone into partnership with the Industrial and Commercial Bank of China (ICBC) to offer credit card services to what could be as many as 60,000 Chinese visitors this year. Another foreign bank with designs on Kenya is JP Morgan, an American bank. Also, struggling Chase Bank, in receivership for a little over two years now, is getting $60 million in new money from SBM Holdings, a banking group in Mauritius. The new SBM Bank Kenya Ltd would only shave off 75 percent of Chase Bank’s assets and liabilities, however. SBM is also invested in Fidelity Commercial Bank, which it bought in May 2017. Imperial Bank, another failed bank, may also be out of the doldrums soon, as Diamond Trust Bank (DTB) is set to acquire its “good” assets. Dubai Bank, the third bank put in recievership in the wake of revelations about fraud, under-reporting of loans, and myriad malpractices, was not so lucky; having been liquidated instead. Furthermore, as part of a broader privatisation programme, which would see the sale of at least 23 parastatals, the Kenyan government plans to sell its controlling stakes in Consolidated Bank, National Bank and Development Bank to private investors.
NPLs to peak
Non-performing loans have been ascendant, rising to 10.1 percent of gross loans in 2017 from 4.6 percent in 2012. In an early July research note, Moody’s, a rating agency, suggests NPLs would peak this year on the back of an improving economy and more successful loan recovery efforts. Already at 11 percent of loans in March, it could come close to 12 percent before year-end if current constraining regulations and conditions do not improve much, though. Christos Theofilou, vice president and senior analyst at Moody’s, summarizes the situation as follows: “Operating conditions are improving in Kenya, with real GDP growth forecast to rise to 5.6% this year as business confidence returns and agriculture recovers following last year’s drought. [Thus] we expect credit growth to also rebound, but remain low due to tighter bank lending criteria.” Moody’s optimism is underpinned by improving infrastructure, a budding oil and gas industry, a youthful population bulge, and fintech. Still, it sees private sector credit growth remaining below 5 percent in 2018. A major reason is the constraining lending rate cap, which has inadvertently led to a greater shift by banks towards government securities, and a further crowding out of the private sector. In any case, there is probably a conflict of interest for the government in regard of the interest rate cap law. While on the face of it, the authorities’ aim is to make credit cheaper and more accessible, a needy government seems to be the ultimate beneficiary; as banks empty their risk buckets in its favour. Little wonder, Kenyan banks remain quite profitable. And if Moody’s view is on the money, they are likely to remain so; maintaining “an average return on assets close to 3.2%.”
An edited version was published in the Q3 2018 issue of African Banker magazine
Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. https://www.businessdayonline.com/columnist/rafiq-raji/article/stopthekillings-kenya-recent-banking-trends-outlook-2/