#Africa #Markets | 18 Sep

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • US stock futures, Asian shares slip as Trump puts new tariffs on China
  • S&P500 E-mini futures down 0.2 pct
  • MSCI ex-Japan Asia-Pacific down 0.3 pct, but Nikkei up sharply
  • Trump imposes 10 pct tariffs on $200 bln goods from China
  • US 10-year bond yields retreat from 4-mth highs

Oil Markets

  • Oil prices drop as escalating trade war clouds demand outlook
  • Brent crude futures down 0.4 pct at $77.78 per barrel (0054GMT)
  • US WTI crude down 0.5 pct at $68.59 per barrel

Precious metals

  • Gold slips as new US tariffs on China lifts dollar
  • Spot gold down 0.1 pct at $1,199.20 an ounce (0027GMT)
  • US gold futures down 0.2 pct at $1,203.90

Grains

  • Soybeans fall to near 10-year low
  • Most active CBOT wheat futures up 0.4 pct at $5.08-1/2 per bushel (0016GMT)
  • Most active corn futures down 0.1 pct at $3.47-3/4 per bushel
  • Most active soy futures down 0.2 pct at $8.21-3/4 per bushel
  • Most active rice futures down 0.6 pct at $10.24 per hundredweight

Key African events or data releases today
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • South Africa’s COSATU congress continues today (day 2)
  • Day 2 of African ports and hinterland connectivity conference in Abuja (17-19 Sep)
  • South Africa consumer confidence index for Q3 2018 expected [prev. 22]
  • South Africa’s state capture inquiry continues

Key African events or data releases yesterday & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Africa’s rapid population growth puts poverty progress at risk, says Gates
  • British fund Gemcorp extends $250 million loan to Zimbabwe – CEO
  • Nigeria’s disaster agency says 100 people killed in floods across 10 states
  • Burundi threatens to quit UN human rights council, sue critics
  • Germany, Algeria to work more closely on deportations, Merkel says
  • Nairobi governor orders investigation into deaths of 12 babies at maternity hospital
  • Uganda unit of Indian drugs firm Cipla raises $43.8 mln in IPO – Renaissance Capital
  • South Africa’s Naspers plans to spin-off, list pay-TV unit
  • International court sentences Congo politician Bemba for witness tampering
  • Africa Crude – Angolan Nov oil exports may fall to 3-mth low
  • South Africa’s competition watchdog imposes conditions on Sibanye-Lonmin deal
  • Charity denies promoting teen abortions after Kenya bans radio ad
  • At least 23 die in weekend of Ethiopia ethnic violence
  • Egypt cancels debt auction as foreign investor appetite weakens
  • South Africa not planning mass layoffs in public sector to fight recession – Ramaphosa
  • Uganda accuses EU parliament of meddling in its internal affairs
  • Ethiopian police detain 200 people over violence
  • South African unions sign wage deal with AngolGold Ashanti
  • Ugandan shilling weakens due to demand from manufacturing, energy companies
  • Egypt cancels t-bond auction for 3rd week – cenbank data
  • Tunisia’s 2019 debt payments to hit record of more than $3 bln
  • Egypt to offer extra shares in five state companies this year
  • Nigeria hits back at HSBC after bank warns of economic stagnation
  • South Africa’s Eskom has coal shortages at 10 power plants – spokesman
  • Kenyan shilling unchanged amid inflows from remittances, offshore investors
  • 5 die in stampede after Angolan soccer match
  • South Africa’s AfriAg seeks UK medical cannabis producer license
  • BP, Vitol go head to head in West African crude trading
  • A year after US sanctions ended, Sudan’s economy unravels

N.B. Full stories of above headlines are available on Reuters

macroafricaintel | [#StopTheKillings] Kenya – Recent banking trends & outlook (1)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In July, a court temporarily suspended the implementation of a new 0.05 percent tax on bank transfers above 500,000 shillings ($5,000); a victory for the Kenya Bankers Association (KBA), which took the matter to court. Widely dubbed a “Robin Hood” tax, it was introduced in the 2018-19 budget by treasury secretary Henry Rotich in June 2018. In the first week of its implementation from 1 July, interbank transfer volumes halved to 11.2 million shillings, from 26 million shillings only the week before. Time will tell whether the reprieve would be permanent, perhaps as early as mid-September, when the suit would be formally heard. More pertinent is how this is just one of quite a number of constraints weighing on the Kenyan banking industry at this time.

Stifling regulation, tense labour relations
There remains the vexing issue for Kenyan bankers of the cap on interest rates on commercial loans at 4 percentage points above the central bank rate instituted in September 2016. Indications that the law might be reversed is gratifying but increasingly frustrating with every delay. Even so, Kenyan banks have not been particularly endearing themselves to the government and wider public in some spheres. Ten of them are being investigated in the ongoing corruption probe of the pilfering of the National Youth Service to the tune of about $100 million, for instance. The bad press would certainly make it difficult for them to stop a proposed financial markets conduct authority. Currently a bill in parliament, once passed into law, the central bank’s powers to rein in erring banks would be passed to it. The consequent duality is likely to slow the oversight process, certainly. And even as any central bank or institution would ordinarily resist any emasculation of its powers, Central Bank of Kenya governor Patrick Njoroge’s worry and view that his institution “is under attack” should be taken seriously.

Besides, the financial markets conduct bill was a disappointment for bankers in other ways. After earlier signalling that the bill would include the repeal of the rate cap law, its absence in what was eventually published and the silence of The Treasury afterwards, dashed hopes in the industry. If Reuters’ sources are right, treasury secretary Henry Rotich might not be entirely to blame. There was a worry that including the rate cap repeal in the bill might jeopardize its passing. Why? The rate cap law emanated from the legislature, not the executive. And a lot of lawmakers, those from the ruling Jubilee party at least, remain fervently opposed to any attempt to repeal it. Suggestions about a compromise range from increasing the cap to allowing banks charge differential interest rates depending on the customer segment. Some banks have chosen to play the waiting game. At an investor briefing in March, James Mwangi, chief executive of Equity Group, Kenya’s largest bank by value, says his bank has more than $2 billion available for lending in the event the rate cap is abolished: “There are no trade-offs because it’s not about us, it’s about the market”, he added for good measure. Other banks might be more accommodating if the cap is raised, though.

Labour relations have also been tense lately. Most recently, the sector’s union attempted to block the payment of bonuses to more than 2,000 managers at KCB Group, the largest bank in Kenya by assets. Their argument was that quite testing quarterly reviews, the basis upon which the bonuses are paid, are discriminatory. A court ruled otherwise in about mid-April. Even so, it highlights how global pushback against what are widely considered to be disproportionately high remuneration for bankers despite their many misdemeanours, is closer to home in the Kenyan case. In a country where about 40 percent of its almost 50 million population live below the poverty line and at a time when a multitude of depositors are still scrambling for their money in at least three failed banks, a bank chief executive earning $1.5 million in bonuses alone, is hardly endearing.

An edited version was published in the Q3 2018 issue of African Banker magazine

Also published in my Businessday Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/columnist/rafiq-raji/article/stopthekillingskenya-recent-banking-trends-outlook-1/

#Global #Markets | 18 Sep

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
09:00 Poland Employment Growth YoY 
09:15 Euro Area ECB President Draghi Speech 
09:30 Euro Area ECB Nouy Speech 
15:00 US NAHB Housing Market Index 
20:00 Argentina GDP Growth Rate YoY 
20:00 Argentina GDP Growth Rate QoQ 
21:00 US Foreign Bond Investment 
21:00 US Overall Net Capital Flows 
21:00 US Net Long-Term Tic Flows 
21:30 US API Crude Oil Stock Change 
00:50 Japan Exports YoY 
00:50 Japan Balance of Trade 
02:30 Australia RBA Kent Speech 
04:00 Japan BoJ Interest Rate Decision
NEWS
US Trade Policy Remains a Source of Uncertainty: RBA 
Australia Property Prices Fall for 2nd Straight Quarter in Q2 
Panama Trade Deficit Widens in July 
Panama Economic Activity at 1.98% YoY in July 
Panama GDP Growth Loses Steam in Q2 
US Stocks Dip ahead of US-China Trade Announcement 
Colombia Consumer Sentiment Weakest in 4 Months 
Indian Rupee Falls on Monday 
Dominican Republic Inflation Rate at 6-Month Low of 3.87% 
Russia Industrial Output Growth Above Forecasts 
Canada Foreign Stock Investment Above Estimates 
Brazil Economy Loses Steam in July 
Israel Current Account Surplus Shrinks in Q2 
Moldova GDP Grows 5.2% YoY in Q2

Source: Trading Economics, Macroafricaintel Research

#Africa #Markets | 17 Sep

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Global Markets

  • Asian shares tripped up by new US tariff threat
  • Asia shares ex-Japan dip, Tokyo markets on holiday
  • Reports Trump to impose more tariffs on China at 10 pct
  • Markets awaiting details, reaction from Beijing

Oil Markets

  • Oil prices ease as trade row clouds demand outlook
  • Brent crude oil futures dip 0.2 pct at $77.93 a barrel (0035GMT)
  • US WTI crude futures down 0.3 pct at $68.79 a barrel

Precious metals

  • Gold treads water on reports new China tariffs imminent
  • Spot gold was flat at $1,193 an ounce (0039GMT)
  • Bullion fell last week for a third straight week
  • US gold futures down 0.2 pct at $1,198.20

Grains

  • Wheat jumps 1 pct, hits five-day high
  • Most active CBOT wheat futures up 0.9 pct at $5.16-1/4 per bushel (0042GMT)
  • Most active corn futures down 0.4 pct at $3.50-1/2 per bushel
  • Most active soy futures down 0.3 pct at $8.27-3/4 per bushel
  • Most active rice futures unchanged at $10.49 per hundredweight

Key African events or data releases this week
[Posts & comments at my Twitter handle @DrRafiqRaji]

  • South Africa consumer inflation data for Aug-18 due on 19 Sep [fcst. 5.6% yy, prev. 5.1%]
  • South Africa interest rate decision on 20 Sep [fcst. 6.5%, prev. 6.5%]

Key African events or data releases over the weekend & early a.m today
[Posted & commented on some headlines below at my Twitter handle @DrRafiqRaji]

  • Egyptian archaeologists find sandstone sphinx in temple at Aswan
  • Sudan’s president brings back Zubeir as central bank governor
  • Ethiopian, Eritrean leaders sign peace agreement in Jeddah
  • Sudan inflation hits new highs in August – statistics agency
  • Athletics – Kenyan Kipchoge shatters marathon world record in Berlin
  • Sudan’s newly appointed finance minister rejects post – SUNA
  • South Sudan’s main rebel group accuses govt of violating ceasefire
  • Congo will declare cobalt and other minerals as “strategic” in coming days – mines minister
  • Exiled leader of Ethiopian rebel group returns home amid reforms
  • Islanders in Kenya build recycled plastic boat to highlight pollution
  • Chad army kills two civilians near Libyan border – sources
  • Egyptian court orders arrest of Mubarak’s sons over stock market manipulation
  • Rwanda frees jailed opposition figure Ingabire
  • Egypt signs oil, gas exploration deal with Shell, Petronas worth about $1 bln – statement
  • Tunisia ruling party suspends PM’s membership after row with president’s son
  • Nigerian finance minister Adeosun resigns over forgery claims
  • Nigeria fraud agency briefly at Standard Chartered’s office in Lagos
  • Nigeria’s Buhari accepts resignation of finance minister – presidency
  • Morocco’s trade deficit widens 10.1 pct y/y in Jan-Aug
  • Africa Crude – BP again bids for Nigerian, Angolan programmes awaited
  • South African rand enjoys strong week as Moody’s turns more upbeat
  • BP, Vitol go head to head in West African crude trading
  • Brazil’s BTG Pactual may keep Petrobras Africa stake – source
  • “Cartel” of Sierra Leone officials ran passport scam for US visas – anti-graft chief
  • Film on rape victims’ recovery shows unseen side of Congo war
  • Kenyan president proposes cutting fuel tax by half, to 8 pct
  • Anglo American asks Angola for permission to explore for metals
  • Tunisia will not impose new taxes in 2019 – prime minister
  • IMF says Kenya’s external position is strong as standby deal expires
  • Zimbabwe’s opposition leader postpones mock inauguration after cholera outbreak
  • Arid Niger a ‘model for Africa’ as desert blooms
  • In South Sudan ghost town, peace deal not yet a reality
  • Bharti Airtel picks banks for London floatation of Africa business – sources
  • IMF says will continue supporting Kenya’s reform efforts
  • Kenyan shilling expected to ease against the dollar
  • Investec to hive off asset mgt unit

N.B. Full stories of above headlines are available on Reuters

#Global #Markets | 17 Sep

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

(GMT+1)

CALENDAR
05:00 Indonesia Balance of Trade 
08:00 Turkey Unemployment Rate 
08:30 Sweden Monetary Policy Meeting Minutes 
09:00 Italy Balance of Trade 
10:00 Euro Area Inflation Rate MoM 
10:00 Euro Area Core Inflation Rate YoY Final 
10:00 Euro Area Inflation Rate YoY Final 
11:00 Germany Bundesbank Monthly Report 
12:15 Euro Area ECB Praet Speech 
13:30 US NY Empire State Manufacturing Index 
14:00 Euro Area ECB Mersch Speech 
02:30 Australia House Price Index QoQ 
09:00 Poland Employment Growth YoY 
09:15 Euro Area ECB President Draghi Speech
NEWS
Singapore NODX Rises Less than Expected in August 
New Zealand Services Sector Growth Slows in August 
Israel GDP Growth Revised Down to 1.8% in Q2 
China August New Home Prices Rise the Most in A Year 
S&P Upgrades Cyprus’s Credit Rating to ‘BBB-’ 
S&P Raises Ghana’s Credit Rating to ‘B’ 
S&P Revises Portugal’s Outlook to Positive 
Peru Economic Activity Gains Modest Steam in July 
US Stocks Pare Gains to Close Mixed on China Tariffs News 
Uruguay GDP Growth Strongest in a Year at 2.5% 
European Shares Close Higher on Friday 
Colombia Retail Sales Rise 3.2% YoY in July 
Colombia Factory Output Growth at 3-Month High of 3.5% 
Sri Lanka Services Sector Growth Slows in August

Source: Trading Economics, Macroafricaintel Research

macroafricaintel | Banking in East Africa: Recent trends & outlook

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

What are the recent trends in the East African banking industry? And what does the future portend for the sector in the region? For perspectives on these questions, African Banker got the views of two highly-esteemed Nairobi-based banking professionals: George Mutua, managing director and chief representative officer for the Kenyan office of Societe Generale, a French bank, and Elizabeth Ndungu, head of research at Genghis Capital Investment Bank. Expectedly, Kenya, the region’s largest economy, dominates. And government policy there is perhaps the most stifling for the sector at the moment. Good news is there are indications some of the measures might be reversed. First is the capping of interest rates on commercial loans at 4 percent above the central bank rate by the Kenyan government. Another is the recently introduced 0.05 percent “Robinhood tax” on cash transfers of more than 500k shillings from 1 July; which halved daily interbank volumes in the first week alone. A proposed Financial Markets Conduct Authority in Kenya also adds to increasing concerns about over-regulation. There is probably a need for stiffer rules, though. For instance, 10 Kenyan banks are currently under investigation for accepting stolen funds. But stronger rules could be self-defeating if they end up weakening the ability of central banks to rein in erring banks. For evidence, reformist Central Bank of Kenya (CBK) governor, Patrick Njoroge, put it bluntly: “The [Financial Markets Conduct] bill emasculates the central bank”, adding the CBK “…is under attack.” Without a doubt, there is increasing political interference in the region’s central banks and indeed elsewhere on the African continent. Curiously, Tanzania’s president John Magufuli, well-known for his heavy-handedness, does not plan to bail out struggling banks in his country: “I will not give any money to failing banks,” Mr Magufuli said earlier this year in March, adding “it’s better to have a few viable banks than dozens of failing banks.” The recurring theme is clearly one where on the one hand, governments in the region are more overbearing on banks with more regulations while on the other hand, in the Tanzanian case, for instance, not so supportive of those that flounder.

Reduced profits, rising NPLs
Undoubtedly, top-of-mind amongst bankers in East Africa is the expectation that the Kenyan government would repeal the law capping interest rates. Since the legislation, credit has slowed. Mr Mutua lets in on his expectations: “We expect the interest rate caps to be repealed through an act of parliament- sometimes in 2018. This should lead to more lending by commercial banks to the SME sector. Easier access to credit will drive economic growth and should improve GDP growth.” Ordinarily, banks were increasingly loading up their books with government securities. The rate cap made doing so more a necessity than a strategy. Should the rate cap be abolished, SG’s Mutua believes “banks would invest less in government securities and more in the private sector.” The move would be beneficial for banks’ bottomlines certainly with interest margins to increase gradually as banks take more risk and charge relatively higher margins to the private sector,” Mr Mutua adds. Genghis Capital’s Ndungu provides additional insights: The banking industry in Kenya has experienced a challenging operating environment over the past year. This has mainly been attributed to interest rate caps introduced in the third quarter of 2016 that has seen banks record reduced profitability on account of reduced net interest income. In response to this, we have witnessed banks adjust their business models through a combination of initiatives aimed at reducing costs such as cutting down branches, laying off staff and enhancing operational efficiency, coupled with revenue diversification so as to tap into non-funded income.” On interest rate caps, Ms Ndungu’s view is thus: “While the interest rate caps have been a pain to the banking sector in Kenya, the East African region has been grappling with increasing non-performing loans (17.4% in Burundi, 12.4% in Kenya, 8.2% in Tanzania and Rwanda, 6.2% in Uganda), primarily on account of the high interest rates in neighbouring countries and inadequate risk assessment, which could affect economic growth in the region adversely. Lending rates in Uganda, Tanzania and Rwanda range between 18.0% and 21.0%, which has seen borrowers suffer the full brunt of accessing credit and led to high default rates. This in turn has stifled private sector credit growth as banks enhance risk management to curb this trend.” On NPLs, for Kenya at least, SG’s Mutua observes “no major shift in NPL levels considering that banks have been forced to clean-up their books and make provisions in good tome by the Central Bank of Kenya,” however, and expects “credit growth in agriculture, construction, manufacturing, retail/FCMG- as banks come up with a lending mandate in support of the president’s Big Four [agenda]”.

Stiffer regulation, consolidation, regional expansion & new entrants
Even as it is expected the authorities would abolish interest caps in Kenya, they would continue to rein hard on banks who charge their customers disproportionalely. SG’s Mutua believes there would be stiffer regulation on how and what banks charge to borrowers [with] the Central Bank of Kenya [insisting]…on transparency on the type and amount of financial cost”. Another development Mr Mutua expects is “…more consolidation in the banking industry – across the industry in the region. We still have too many small banks in Kenya, Uganda, Tanzania and there’s need for consolidation. It will be pushed by both business viability needs and regulatory requirements on adequate capital levels. We see the big local banks continuing to expand and deepen their presence across the region. [And] top local banks in Kenya, Tanzania, Uganda will start looking for regional dominance.” Mr Mutua also sees “the continued adoption of mobile-money and digital solutions by banks over additional/new investments in brick and mortar network [and an] increase of the agency banking model. Furthermore, there should be “more and better market segmentation with a new emphasis on wealth management, financial planning solutions,” SG’s Mutua believes.

On the outlook for NPLs and banking in the East African region, Genghis Capital’s Ndungu says: Going forward, we expect this trend to be managed as banks tow in line with the requirements of IFRS 9, that requires a forward looking approach in loan provisioning. This will force banks to be more prudent in their assessment and will also require fiscal consolidation (government support) in order to ensure that private sector credit growth in the region does not deteriorate as a result of the crowding out effect. With a population growth rate of 3.0%, compared to other developed countries below the 1.0% mark, coupled with increasing financial inclusion and more uptake of financial services products, the East African region offers an attractive proposition for long term investors looking to take advantage of the attractive valuations.” SG’s Mutua also sees the “entrance of new global and regional payers- the likes of JP want to establish a rep office covering East Africa in Nairobi. The replacement of Barclays by ABSA in Kenya and Tanzania. He also expects “more competition from local banks- empowered by mobile money solutions, agency banking, and digital banking- the “traditional” local banks will pose new competition to established international brands in the region.” In conclusion, Societe Generale’s Mutua sees “more and better regulation of banks in Tanzania, in terms of how they classify and provide for bad debt in their books, more focus on supporting/financing intra-Africa trade [as] banks in East Africa…target traders involved in exports and imports across Africa, better and stronger relationships with multilaterals, DFIs, insurance bodies, to put in place guarantees and de-risking solutions that will make certain sectors [like] agriculture, commodity trading more bankable. 

An edited version was published in the Q3-2018 issue of African Banker magazine