Asset Finance:The New Craze in Town

What is it?
This is typically structured as a line of credit secured by a specific asset or across a combination of existing assets. It encompass using balance sheet assets (such as accounts receivable, short-term investments or inventory) to obtain a loan or borrow money - the borrower provides a security interest in the assets to the lender. This differs from traditional financing methods, such as issuing debt or equity securities, as the company simply pledges some of its assets in exchange for a quick cash loan.
This type of financing is typically used for short-term borrowing or working capital. Companies using asset financing commonly pledge their accounts receivable, but the use of inventory assets is becoming more frequent.

NIC Bank
Every once in a while our customers require a helping hand to finance their assets. NIC Bank for example ventured into helping customers to acquire their assets with ease, whilst keeping our pricing very competitive. This augured well with the market and helped the company reap massive returns.

Asset Financing Now
Asset financing has become a major competitive ground for banks as they seek to increase their interest income-based revenue. Banks are competing on interest rates, collateral arrangements and longer repayment periods to persuade customers to take up this line of credit.
Already, asset financing is accounting for an average of 15 per cent of total interest income for banks. The industry believes potential to raise this figure exists, considering that most banks started giving asset financing more focus only in the last five years.More

Stanbic Bank
This is is a relatively new entrant in the asset financing market, having set up the department about four years ago. The company is financing 30 to 40 vehicles per month.

KCB
KCB’s recently launched Asset-Based Finance product allows customers to borrow from Sh1 million to purchase assets in a repayment period of 12 to 60 months. Borrowers are required to make a minimum deposit of 20 per cent of the value of new assets.

Asset based loans are perfect for:
-Company acquisitions and business mergers
-Management buy outs
-Financing expansion
-Turnaround finance
-Refinancing existing business loans

Why consider asset based financing for capital?
-Able to leverage sales growth today
-The lack of flexibility through regular bank financing is no longer an issue
-Revolving credit lines can be secured by your raw materials and finished goods inventory
-Access large amounts of cash that have already been invested in the infrastructure

Over The Counter Market Needed at NSE

Historically over-the-counter markets were established at the beginning of the 20th century and have grown by leaps and bounds to become important part of the current financial markets infrastructure. Kenya is however yet to fully appreciate and embrace this phenomenon that is likely to thrust capital markets trading a notch higher with increased listings and options for the investing public.

Over-the-counter (OTC) trading
This is to trade financial instruments such as stocks, bonds,commodities, or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futurews exchanges or stock exchanges.An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.An over-the-counter market is a financial market where products are traded over-the-counter.

Role of OTC
The over-the-counter market has taken on a huge dimension especially in the USA, because there it has given room for other often also high risk issuers to enter the market, something which would have been impossible for them on a bourse.

In general
The reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements.
In Kenya this would ensure that many corporate entities that have often been shying away from listing at the bourse due to stringent listing requirements will have an opportunity to sell their shares for subscription by the public. This would enhance the number of options available to investors and eventually would enhance trade volumes, liquidity and widen the options available.

Financial Markets Contagion

Financial market
The financial market is an en elaborate markets that encompass the money market and the capital market. The money market facilitates short term borrowing whereas the capital markets provides for long term lending.

Financial market Interconnection
Advances in information and communication technology has seen many financial markets become interconnected and more often information released in one place will be replicated in other markets either positively or negatively depending on the nature. In Kenya, the regulators have been asked to be vigilant against the possibility of Kenya being affected by the financial crisis currently facing other parts of the world.

Financial contagion
Financial contagion refers to the phenomenon when one country's economy is negatively affected because of changes in the asset prices of another country's financial market.One particular example of this can be seen during the Asian financial crisis of the late 1990s. A more recent crisis where disruptions quickly spread into other areas of financial markets is the Subprime mortgage financial crisis in August 2007.

Subprime Virus
The subprime virus has gone global. Starting as a localised outbreak in the US market for risky subprime mortgages, it has spread into the supposedly safer markets and even into prime mortgages. Meanwhile, it has crossed into other loan species – particularly leveraged lending, where ballooning spreads have rattled the market and left banks holding big chunks of debt.

Effects
Those with bad leveraged bets face falling collateral values, tighter lending from prime brokers and illiquidity in some assets. That is probably exacerbated by investors seeking redemptions after two Bear Stearns funds blew up in June. That can force a fire sale of assets or a redemption freeze and more fear. more

Kenya financial market
Here in Kenya, although analysts concede the probability of contagion is low, the call is being made in view of the fact that foreign investors have increasingly been looking at the Kenya’s financial markets as a safer alternative to the developed and emerging markets where there has arisen a crisis resulting from failure of risky and poorly structured mortgage dubbed “sub-prime mortgages” market.The Central Bank of Kenya, Capital Markets Authority and the Nairobi Stock Exchange and Treasury are institutions that are in one way or another involved in monitoring of developments in the financial markets.

Emerging markets (EMs) Capital Markets
EMs far from the source of the initial shock can be victims though they are innocent bystanders. Because contagion is possible and likely for emerging markets the cost of capital market contagion could be major.

Big Q
The question is whether the contagion, which started in US housing, spreads back from financial markets into the real economy.

What's in a Name?

What's in a name?
Shakespeare once asked through one of his fictional characters. Another old adage goes that a rose will still smell the same, even if it is called by another name!.

Corporate Scene
The Kenyan corporate scene has been awash with news of different facets. The stock market is recording gains with indications that it might not be infected by the electioneering fever that is slowly creeping into our country with stories of proverbial horses in the race gearing for the penultimate showdown.
MPesa phonomenal growth is traversing international borders as new of mergers and acquisitions continue to hot up.
Companies are releasing outstanding results and profitability feats accompanied by bonuses and hefty dividends. Others are running back to the market to borrow through further rights issues and bonds issues.
Trancentury is entering the private equity and investments scene with a bang leaving many coveting their unparalleled feats.
News has it that the Treasury and the Commission of Monopolies has approved the buy out of CFC Group by Stanbic Bank, paving the way for further endorsement by banking and securities regulators. Closure of the deal will usher in Kenya's largest merger and acquisition deal, M&A, which is expected to change the way local banks sell financial services to the public.
Companies are rebranding and unleashing new products as banks continue hawking loans with a new found zeal. This comes after the realization that the common man who has a bank account

Kencell-Celtel-Zain
Kuwait’s MTC Group, the majority shareholder in Celtel, has formally announced a name change for its local subsidiary —the second in seven years . Celtel Kenya joins the company’s 21 sister companies in Africa and the Middle East in adopting the brand name Zain . The latest name change for Kenya’s second mobile phone service provider comes just three years after changed its trade name from KenCell following a buyout that brought in telecommunications tycoon Mohammed Ibrahim as the principal shareholder.
In 2004, Celtel bought its 60 per cent stake in KenCell Communications for $250 million prompting the name change.

MTC Group
This is the leading telecommunications mobile provider in 21 countries across the Middle East and Africa, today announced it has re-branded to Zain which becomes the Group's corporate master brand with immediate effect. In Africa the Zain Group will continue to trade under the Celtel brand.

Zain
Four country operations in Kuwait and Bahrain, (both formerly MTC-Vodafone), Jordan (formerly Fastlink) and Sudan (formerly Mobitel) will immediately re-brand to Zain. The Group will commence operations in the Kingdom of Saudi Arabia under the Zain brand in early 2008 after being awarded the third mobile telecommunications licence in July 2007. Additionally, the Group's successful operation in Iraq, MTC Atheer, will also re-brand to Zain in the near future after recently winning an extended 15 year nationwide licence.

TRANScending the CENTURY in Investments

Trancentury group is a company that (started as an investment group) has risen from obscurity to uccupy the coveted pedestal in the Kenyan corporate scene. Most young entrepreneurs striving to own big corporations and sit in big board meetings where they call the shots often look back at the feats that this politically connected company has attained within a short span of time for their motivation.

Over the years Trancentury has modelled itself as an active investment unit that employs creme-dela-creme in the investment and portfolio management cycles with incredible papers to run their affairs while the directors dig deeper into their pockets to unleash the much needed investment funds. This has borne fruits for this company.

Investment Groups

It is noteworthy that one in three working Kenyans is a member of an investment group and Sh30 billion is estimated to be held by these groups, almost close to the Sh 35 billion that Safaricom hopes to raise with its IPO later this year. Indeed their popularity has extended across the borders with Kenyans abroad pooling their resources to invest in the country, with the Nairobi Stock Exchange and real estate being the most popular areas of investment.

Portfolio

TCL’s current portfolio of investments traverses rail transport, financial services and manufacturing sectors with some of its most notable investments being a stake at the Rift Valley Railways (RVR), the concessionaire for the Kenyan and Ugandan Railways system.

Growth

Trans-Century’s foray into the regional markets signals the 10 year-old firm’s hawk-eyed strategy of seeking fundamentally viable, well positioned companies with attractive growth prospects. TCL has in the last five (5) years been making waves after a series of profitable acquisitions and stock market investments that has seen the company that started as an investment club with a capital base of Sh1 billion turn into a 14.3 billion fund in a decade.

East African Cables

East African Cables marked the start of the most successful part of investing for Transcentury Company Limited (TCL). In 2003, the firm closed one of its smartest deals yet by buying 75 per cent of East African Cables, which is listed on the NSE from Naushad Merali for Sh240 million. East African Cables is today worth Sh9.9 billion, meaning the TCL stake is valued at Sh7.4 billion. TRANS-CENTURY is the controlling shareholder in the East African Cables (EACL) group, through its subsidiary company Cable Holdings Ltd.

Products manufactured by Cables include copper electrical cables for domestic as well as industrial applications, aluminum conductors and cables for power distribution and transmission over national gridlines. After the acquisition (TCL owns 75 per cent of EAC) profit after tax has increased 30 times from Sh9.3 million in 2003 to Sh284 million in 2006. Sales have increased five times from Sh428 million to Sh2 billion.

Dausung Cable

TCL already dominates the electronic components market in Kenya, through East African Cables and in Tanzania after it acquired a 51 per cent stake in Tanzania’s Daesung Cable for $2.62 million from its Korean owners.

KPLC

It also has a two (2) per cent stake in Kenya Power & Lighting Company (KPLC), which also gives its investment portfolio a significant presence in the energy sector and an overweight exposure to risks in that sector as well.

TCL’s investment in KPLC is now worth Sh447 million. Money raised from the sale of KPLC shares was used to finance the Sh630 million investment in Rift Valley Railways— the company that won a 25-year contract to run the Mombasa-Kampala railway line.

Development Bank of Kenya

Last year TCL acquired a 10 per cent stake in Development Bank of Kenya from the Commonwealth Development Corporation (CDC). Development Bank of Kenya is a leading Kenyan development finance and commercial bank that focuses on the corporate market. TRANS-CENTURY holds a significant minority equity position in this entity and has invested along side Industrial Commercial and Development Corporation (ICDC) the investment arm of the Government of Kenya.

Equity Bank

TCL holds a 1.38 per cent stake in Equity Bank.

Kewberg Cables and Braids

Transcentury Limited (TCL) is in the process of refashioning itself into a private equity fund, has turned the tide by making audacious acquisitions of Kewberg Cables & Braids, a South African firm and ABB Tanelec, which is based in Tanzania.TCL has bought 100 per cent of the shares in the South African firm and 70 per cent of the Tanzanian firm allowing it to spread ita wings to the south african market.

Kewberg Cables & Braids (Pty) Limited, which is located in Johannesburg is a leading manufacturer of instrumentation and control cables for the oil and gas, mining and power sectors.

ABB Tanelec (Tanelec)

This is the largest manufacturer of electrical distribution transformers and switchgear in East and Central Africa. The Arusha-based Tanelec distributes its products to a number of Sub-Saharan African countries including: Tanzania, Kenya, Uganda, Zambia, Mozambique and the Democratic Republic of Congo.

The ABB Group of companies operates in around 100 countries and employs about 111,000 people.

Rift Valley Railways (RVR)

TCL is the largest minority investor with a 20 per cent equity stake.

Avery East Africa Ltd
TRANS-CENTURY holds a controlling stake in Avery East Africa. This company is the leading manufacturer and distributor of a complete range of domestic and industrial, manual and electronic weighing scales, as well as video jet printers for industrial use.

Aureos Capital Limited

This is an independent private equity fund manager focused exclusively on the emerging markets. Aureos specialises in providing expansion and buyout capital for low to mid-cap businesses with prospects for strong growth and profitability across Asia Pacific, Africa and Latin America. Established in July 2001, Aureos has to date raised and managed US$570m in 24 funds worldwide. Ten of these funds have been raised since 2001, with approximately US$395m of committed capital. In addition, Aureos manages 14 funds previously sponsored and administered by CDC Group plc.
TRANS-CENTURY has invested in three Aureos funds to date. These are the Aureos East Africa Fund, Aureos China Fund and Aureos South Asia Fund.

Business Partners International (BPI)

This is a specialist investment company which has partnered with the International Finance Corporation (IFC) to provide debt and equity capital, mentorship and property management services to Small and Medium Sized Enterprises (SMEs). TRANS-CENTURY has invested in the USD 14.1 Million BPI Kenya SME Fund.

Helios Investment Partners

Helios is a US$300 million private equity fund making private equity and ‘special situations’ investments in Sub-Saharan Africa with a focus on West Africa.

Real Estate
TRANS-CENTURY invests as a primary sponsor or along side other partners in green field and existing property ventures.

Business Prospects

Kenya: Locally, massive Government electrification programmes are ongoing which has consequently seen an increase in demand for quality cables and conductors to the power utility— Kenya Power and Lighting Company (KPLC). The rural electrification programme has connected more than 120,000 people to the national grid in the past 12 months.

Tanzania: massive cabling projects are expected to begin as Tanzania Electric Supply Company (Tanesco) prepares for a major upgrade, following the pumping in of $240 million by a syndicate of local commercial banks and pension funds for the recovery of the power utility firm.

Africa: Icnreasing demand for cables and other related products.

Other investment regions

TCL has invested in Zambia, Nigeria (indirectly) and South Africa.

Business blunders

This encompass Transcentury’s investment in Castle Brewing which closed its operations in Kenya after only a few years following a bruising battle with East African Breweries. In March 2006, news had it that Transcentury Group was to buy 24.9 percent stake in the largest mortgage finance company, Housing Finance Corporation of Kenya (HFCK). This led to a price rally at the NSE that latter led to the collapse of the deal to buy the stake as CDC demanded a market valuation of the stake.

Investments philosophy

-Looking for undervalued companies with potential.

-Not looking for easy going investments.

-Commitment to the company ideals

-Good corporate governance

Kenya Diaspora Indispensable in Development

Remittance home

The Kenyan government has been courting kenyan investors abroad thanks to their pivotal role in economic recovery strategy through direct investments and economic development. Their role in development is crucial in replenishing the national coffers through their remittances.

In Kenya, it is estimated that at least $1 billion is being remitted annuallyup from about $750 million in 2005. Between 45 per cent and 65 per cent of the money is received informally and therefore not captured in official records. They are indeed the top foreign exchange earners.

IMF says that these remittances are now the single largest source of forex ahead of tourism and horticulture in Kenya and, in Sub-Saharan African (SSA) countries, the transfers exceed Official Development Assistance(ODA) from development partners.

Sub Saharan Africa (SSA)

Kenya has emerged second to Nigeria among African recipients of foreign exchange remittances with households headed by women leading beneficiaries of offshore money transfers from individuals. These diaspora kenyans are influencing the macroeconomic variables back home including the exchange rate (Impacting the shilling), inflation rate and interest rates either directly or indirectly.

In absolute terms Kenya, Nigeria, and Senegal are the largest recipients of remittances in the region. Remittances from african diaspora form a quarter of all exports for at least four countries on the continent. For Lesotho, Cape Verde, Uganda, and Comoros, for instance, remittances have since 2000 amounted on average to more than 25 per cent of export earnings. In 2005, remittances to the 34 Sub Saharan Africa (SSA) countries reporting are estimated to have been about US$6.5 billion.

In kenya, the money is largely used by relatives to fight poverty through education and health support as well as investments in real estate and shares listed at the Nairobi Stock Exchange.

Diaspora at NSE

Kenyans professionals and entrepreneurs abroad have continued to play a crucial role in investments back home and for those who wish to return latter and enjoy their hard earn savings there preferred channels of investments has been the NSE and the property market. Infact 40 percent of new home buyers are Kenyans residing abroad acording to real estate developers.

The phenomenal growth of the NSE in the last 3 years and the price rally realized at the NSE last year, 2006, and partly in 2007 has seen many diaspora kenyans also remit their savings for investments in shares and other availabe options at the Nairobi Stock Exchange. Kenya Capital Investments Group is one such investment group that has consistently blogged on their activities and investments at the NSE. As some would say the future of ivnestments therefore lies in investment groups and why not given then feats realized by Trancentury in a span of less than ten years.

SSA vis other countries

Remittance flows to SSA are relatively small, 4 per cent of total remittances to developing countries and just 33 per cent of those to India, which receives the most. In contrast, countries in Latin America and the Caribbean received 25 per cent of all remittances, as did the countries of the East Asia and Pacific region.

Private Public Partnerships (PPP)

In 2006 the mutually beneficial relationship between the Capital Markets, the Government of Kenya and the Private Sector came to the fore with the raising of approximately Kshs. 12.04 billion, through the Initial Public Offerings (IPOs) of Kenya Electricity Generating Company, Scangroup and Eveready and the sale of additional shares in Mumias Sugar Company (MSC). As a result of the IPOs, the number of Central Depository and Settlement (CDS) accounts has increased from 86,820 on February 1 2006 to 634,420 on February 14 2007, a six fold increase. These developments alongside the implementation of Automated Trading System (ATS) has spurred interest at the NSE from locals and diaspora kenyans.

Therefore...

The Kenyan Diaspora has increasingly become an important part of the Kenyan Economy. Through remittance, the Diaspora has become the leading foreign exchange earner for Kenya. This has led to concerted efforts to actively involve them in the economic transformation of Kenya through Kenya diaspora investment forums.

Future Prospects

Experts have estimated that the remittance can be increased to over 3.4 Billion dollars a year if effective investmentment strategies are put in place with the argument being that Kenyans in the Diaspora look for investments elsewhere because investing in Kenya under present conditions is very risky. The report on Kenya Diaspora Investment Forum alongside other concerted efforts ( including Kenyans Abroad Investment Fund-KAIF) to address diaspora needs should be clearly scrutinized and their recommendations implemented.

Making Kenya Next Outsourcing Hub in Africa

Role of ICT
The 2006 Kenya ICT strategy promotes collaboration and outsourcing for economic growth and makes a good read. As a matter of fact, It is now evident that nations the world over have recognized the developmental opportunities as well as the challenges brought about by the fast-paced information age whose hallmark is information and communication technologies (ICTs). Evidence from developed countries has shown that ICTs can play a dramatic role in enhancing economic and social development by acting as a production sector for economic growth and an enabler for social development.

Sectoral Applications

ICT applications have enabled these countries make gigantic improvements in both productivity and quality in agriculture, manufacturing, infrastructure, public administration, and services such as finance, trade, distribution, marketing, education and health.

Kenya ICT Board

The newly launched Information and Communication Technology (ICT) board has started an aggressive campaign to market Kenya as the next outsourcing destination in the world after India and South Africa in this part of the world. South Africa with the largest economy and ICT infrastructure in the sub region, had been poised to lead the charge but now here comes Kenya with its fiber optic infrastructure being set up as well as the emergence of digital villages and kiosks all over the country.

Funding

The heavily funded ICT board plans to use the Sh8 billion loan it received from the World Bank in May to expand use of existing bandwidth, increase capacity for outsourcing as well as digitise the country’s 210 constituencies through digital villages.

Business Process Outsourcing is therefore an idea for 2007/08 and beyond and with enough capital you may wish to lay down strategies towards setting up a call center!

ICT and NSE

With the laying of the submarine cable and the country's fiber optic infrastructure time is now ripe for online shares trading and the emergence of online stock brockers in the league currenlty dominated by 18 brokers making it one of Kenya's exclusive clubs. The emergence of Online stockbrokers will be a move in the right direction. Currently hisanetafrica a stocks agency firm is providing online account management and reports and with the right infrastructure they can easily pounce on this new catch alongside other players as Eight Ltd and more.

Imperatives

As policy makers and the government strive to utilize ICT in all sectors as well as make Kenya an ICT hub it is vital to ensure the following:

Policy-Hasten the formulation of a legal and policy regime that regulates e-transaction, privacy and data protection, intellectual property rights, capacity building and generating content for the digital villages initiative, among others.

Connectivity-This will be achieved through the purchase of broadband capacity in regional and national networks for specific user groups such as universities, schools and technical colleges. Further there is need to fasten ther laying of the fiber optic cable infrastructure in the country and the under sea optic cable to connect Kenya and the world.

BPO-Speed up business process outsourcing (BPO) industry through intense marketing abroad so as to wrestle the pie from such developed economies as India. South Africa etc.

Implementation- There is need to implement the proposals of the Kenya’s National ICT Policy (2005) and ICT Strategy for Economic Growth (2006) amongst others.
Collaborations-The government should encourage partnerships with all stakeholders in maintaining a favorable climate for investment in ICT manufacturing and services.

Foreign Direct Investment-The should be full support for FDIs in this vital sector that is poised to steer Kenya towards Vision 2030.

Stock Markets wake up to Bloginvesting

Emerging Trends

It is now evident that the stock market has awaken to the realization that bloggers especially those inclined to comment on the financial markets have a great impact on the activities at any given bourse both in the emerging markets and the developed world.

More and more companies are entering the world of blogging, but why do they do it - what are the benefits?The internet is evolving, and so is the blogging phenomenon. Today we don’t only see the well-known personal weblogs, the blogging community has evolved to be a more topic-based system. When we look around, we will soon discover that most personal blogs have started focusing on a few topics - design, art, welfare, history, religion, movies etc and in our case financial markets and more specifically the capital markets of Africa and beyond.

Bloggers and Blogosphere

These are people who continue to churn out millions of pages of information every day as they endeavor to critically look at the various issues in the current world from politics to business, from social issues to environment from entreprenership to corporate deals and and from innovations to educational materials. Al strive to publish their blogs albeit with different levels of candorBlogosphere is a collective term encompassing all blogs and their interconnections. It is the perception that blogs exist together as a connected community or as a collection of communities or a social network.

Blogs and Investing

Market gossips on the internet is beginning to play a larger role in stock markets around the world as they are continually and increasingly being powerful sources of both information and disinformation. Finding out what they are talking about is becoming an important task for analysts, stock brokers, and other market players.

Some companies even abroad have gone so far to set up their blogs through which they provide markets with information outside the traditional media arrangements. In the US companies are increasingly using blogs to communicate with shareholders. Blogging allows shareholders to bypass their public relations departments, journalists and industry analysts and speak directly to the public.

US markets and Blogs

US hedge funds have introduced automated systems that will trawl through more than 40 Million internet sources from blogs to regulatory filings for information. These include monitor 110, yahoo finance, google finance, Thirty Fortune 500 companies now publish corporate blogs. Other companies encompass Amazon, Cisco Systems, Oracle, Boeing, General Motors have also embraced the trend.

Kenyan Blogs of Note

It is noteworthy that the blogosphere in Kenya has grown by leaps and bounds and today i would like to recognize the unparalleled contribution of these individuals. Their special niche in shaping corporate Kenya as well as public opinion on any emergent issues is invaluable. These special bloggers five of which would like to commend include:

-Bankelele with his avid analysis delivered with the candor it deserves.

-Kenya Capital Investment Group with their perspective of kenyans in diaspora.

-Riba capital with the incisive analysis despite current anactivity.

-Cold Tusker with his all rounded views leaning on the political.

-Odengle Nyang and Vituvingisana in the same category with the pundits perception on topical issues.

Bank on Banks Stocks in the Next 5 Years

The first half of the year 2007 saw many banks release their profitability results with many declaring good dividends followed by bonuses and even rights issues. Over the last few years Kenyan banks haven been on a profitability path and the momentum is not likely to be lost soon.

In 2006 the industry grew by 39.7 per cent to Shs 12.6B in the first half of the year up from Shs 9 B in 2005 over the same period.

Macro-economic Environment

The banking industry has been doing well since 2003 with indications that the momentum will be sustained over the next five years. Buoyed by favorable macroeconomic environment that encompass the stable inflation, exchange rate and interest rates. Kenya's robust banking industry may have improved tremendously in terms of size, profitability and product offering over the last 10 years but the growth does not reflect in the country's overall development despite the 6.3% growth realized in 2006/07 financial year. This is because despite news that the poverty index now stands at 46% it is evident that many are still living in abject poverty with nagging family obligations.

High fees and Interests rates

The emergent news on profitability by banks may be good news to stock punters but consumers of financial services are paying the highest price for borrowing little money from commercial banks. Further customers are continually being charged high account maintenance fees alogside other non interest charges that have compounded a bigger portion of banks profitability pie. This comes in the wake of recent calls by the CBK to banks to significantly reduce their interest rates on loans. This was followed by threat to name and shame the offenders but this seems to have fallen on deaf ears. Equity bank however did cap loan processing fees from 18% to 15% in response to CBK directive.

Growth

The new report indicated that the total assets for the banking sector grew from Ksh328 billion (US$482 million) in 1997 to Ksh746 (US$1.4 billion) in 2006, representing a 132% increase.
Similarly, profitability rose from Ksh 15 billion (US$23 million) in 1997 to Ksh 27 billion (US$41 million) in 2006. Their growth is expected to be sustained with still a small fraction of kenyans having bank accounts.

Finance Bill

The budget for 2007/08 financial year however has brought a new challenge of capitalization to Microfinance Institutions (as well as banks alike). MFIs had been pushing for the passing of the Microfinance Bill that would see these Small and Medium Enterprise (SMEs) lenders accept deposits among other things.

The finance bill stipulates inter alia to increase the minimal capital requirement for commercial banks from Ksh250million to Ksh1 billion within the next three years.

Mergers and Acquisitions

The move to increase capital requirements for banks is likely to precipitate moves for Mergers and Acquisitions (M&A) in the banking industry once the bill is enacted. CFC and Stanbic had already led the way and who knows with Equity acquiring 24% of Housing Finance they might push for a merger of this fast growing lender currently dogged by controversy and the mortage company.

Oligopolistic Tendencies

Three major banks, Barclays, Stanchart and KCB have dominated the banking sector, controlling between 40 and 50 per cent of the market throughout the past ten years leading a pack of more than 40 banks.

In terms of market share, the top five banks last year were Barclays Bank at 16 per cent, KCB at 13 per cent, Standard Chartered at 11 per cent, Co-operative Bank 8 per cent, Commercial Bank of Africa 5 per cent and National Bank of Kenya 5 per cent. The top ten players control more than 75 per cent of the market, with the remaining 32 sharing the balance. Bankelele has provided an avid analysis of the Kenya banks ranking.

Bank Stocks

With Banks profitability on the rise and their ambitious expansion programs to other markets coupled with mergers and acquisitions, investors will never go wrong banking on the stocks of the listed banks in the long run. These encompass Barclays, KCB, Stanchart, ICDCI (You can check my earlier analysis on ICDCI), CFC, NIC, Housing Finance, NBK, and DTK.

Buy hold and make money!