The Changing Faces of Banks in 2007

Radical changes
The banking sector has come a long way and with mergers and acquisitions in the offing as well as the emergence of near financial supermarkets the future is indeed bright for our banks.

Investors
Most investors in banks stocks have often made a kill over the last few years with splits, dividends, bonuses and price appreciations having been witnessed.

New products
The banking sector is indeed undergoing radical changes and new products are being unveiled everyday target the larger populace as oppossed to the big-mans-bank syndrome that had been evident a few years ago. Banks are now literally going to the streets to hawk their wares and sell the loans to every would be buyer with little or no requirements at all.

Interest rates and competition
Interest rates have dropped drastically as banks strive to offer cheap products to borrowers for their businesses and other needs.Competition in the banking industry is indeed evident and every new day new banks are emerging.

New Banks
Most non deposit taking institutions are now converting into microfinances and finally banks in a matter of years and the number of banks is increasing by the day.

Banking stocks
The banking stocks have continued to soar to new record highs never witnessed before as investors both local and foreign rally to buy them.

Cross border trading
These banks have even dared to cross border to other regions talk of KCB in Uganda and southern Sudan where it continues to serve its customers. Others are savouring the region for strategic partners to inject new blood inform of liquidity into the system talk of Equity and Helios deal as well as Stanbic and CFC deal.

Stock broking
Other banks are craving for a piece of the stock market pie with ventures into stockbroking. NIC failed bid for the stake of the collapsed Francis Thuo (won by renaissance capital) has seen it partner with another securities dealer. Talk about slowly getting their.

Asset Finance
Asset finance is becoming the talk of town with considerably lower interest rates charged by banks for the same. This was started by NIC bank but now adopted by NBK, KCB, Equity, Family Bank, Stanbic and the list is growing.

...and the changes go on...

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

NBK out of the Woods at Last!

No longer at the edge

The results released yersterday by the National Bank of Kenya board/management show that the company has reported a 35% increase in pre-tax profit to Sh617 million for the half year ended June 30, a proof that the repayment of a Sh2o billion debt by the Government is bearing fruits and has helped to pull the company from the edge.

Bonds issued

The debt repayment by the government was effected after it issued bonds worth Sh20 billion as a repayment of Government guaranteed debts advanced by the bank to state corporations. The government has further promised to pay the remaining Sh1 billion by March next year thus clearing its bad debt portfolio with the bank and hopefully enabling the company to significantly reduce its bad debts provision which had significantly reduced its profitability margins over the years.
It was evident that the bank’s investments in government securities shot up by a whooping 743 % from Sh2.8 billion to Sh23.6 billion (The 20B increase in the balance sheet) reflects the loans that were converted into government bonds.

National Bank of Kenya has reported an after tax profit of Ksh.432million compared to Ksh.320 million during the same period last year. This translates into an increase of 35% over the same period last year.

The company's financials summary is as presented below:
1.Interest income on loans & advances:
This reduced from Ksh.2.3billion to Ksh.1.8billion.

2.Interest expense:

This reduced from Ksh.439million to Ksh.375million due to the general decline in interest rates.
3.Provision for bad & doubtful debts:

This reduced from Ksh.1billion to Ksh.350million marking the end of the bank‘s provisioning for all historical bad debts.

4.Commission income:

This improved from Ksh.600million to Ksh.725million.

5.Total deposits:

Deposits increased from Ksh.27billion to Ksh.33billion.
6.Gross Non Performing Loan’s portfolio:

The level not fully provided for and therefore to be managed in NBK balance sheet is Ksh.5.5billion against which a total provision of Ksh.4.3billion is held leaving a net of Ksh.1.2billion. This is covered three times over by securities hence the zero exposure shown.Fully provided for NPL’s which therefore cannot negatively affect operations are being managed by the bank separately outside its balance sheet.
7. Core capital:

This stands at Ksh.3.6billion against the current statutory requirement Ksh.250million and the extended limit of Ksh.1billion. Following the restructuring of the GOK debt (20billion) and full provision of NPL’s, the asset quality of the bank as measured against the core capital has improved significantly.

New Branches:

New branches to be opened are at Moi’s Bridge and at Egerton University.

ATM network:

This continues to expand after the partnership with PESAPOINT last year that saw NBK customers access an additional 110 ATMs. The bank will soon double the existing ATMs in the branch network.
Asset Financing:
The bank recently introduced asset finance and unsecured business loans to meet the changing needs of our customers. Our existing products are currently being reviewed and repackaged with a view to making them up to date with the market dynamics and the ever evolving customer needs.
Mortgage Financing:

The company is working on a mortgage product which is set to be launched soon. The bank will continue to introduce new products that provide solutions to the financial needs of our customers and Kenyans in general.

From the foregoing, the bank is likely to have come out of the woods at last...