Kenyan bank happy with bonds move

March 11, 2010
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, NAIROBI, Kenya, Mar 11- Co-operative Bank of Kenya has welcomed a recent move by the Capital Markets Authority and the Central Bank of Kenya to allow commercial banks to directly trade in bonds from their offices.

Co-op Bank Managing Director Gideon Muriuki said the move would help open up the stock market to more growth and should be supported.

“Anything that will come in to support the vibrancy of the stock market is good for everybody and I support it. I don’t think it’s about banks buying a seat but being able to trade with their bonds at the Nairobi Stock Exchange,” he said.

The NSE recently asked banks to apply for the ‘authorised securities dealers’ licenses, a proposal that has been opposed by many stockbrokers who are likely to lose revenue they earn from charging a 0.04 percent of the value of a (bond) transaction.

Although banks will no longer pay this commission fee, applying for the permit will still require them to pay a licensing fee which they argue does not make much of a difference.

A dealer at the Commercial Bank of Africa who did not wish to be named told Capital Business that while banks welcome the move, they would like the licensing fees reduced.

Commercial banks control 52 percent of the transactions in the bonds market and as such argue that they should be allowed more flexibility in this segment. They are in negotiations with the market regulators to discuss ways of lowering these fees. This, they argue, would lead to a market correction of the bonds prices as well as introduce efficiency in the segment.

Banks such as Co-op which has been offering brokerage services however do not seem to have a problem with the fees although there’s a general feeling among bankers that the charges should be lowered.

Mr Muriuki spoke during an investors’ briefing where he announced a 25 percent rise in the bank’s profit after tax to Sh2.96 billion for the year ended December 31st 2009.

Total customer deposits went up to Sh91.6 billion compared to Sh65.9 billion posted in 2008, which was supported by an increased client base of 1.2 million. The loan book also grew by 18 percent to Sh62.3 billion mainly due to their diversified product line as so did the net interest income that went up to Sh5.7 billion.

The bank’s Non Perfoming Loans declined from 15.6 percent to 9.8 percent due to what the MD explained was the enforcement of their credit risk management policies.

The board has proposed a dividend payout of Sh0.20 per share up from the Sh0.10 paid in 2008.

Going forward, Mr Muriuki said they expected to reap big from the growing demand for property finance in the middle to upper market segments in the country.

Since the introduction of their ‘Good Homes’ mortgage product last year Co-op had seen the number of people applying for mortgages grow and projected that the portfolio would continue to contribute significantly to their bottom line in the future.

“This has picked excellently and we expect it to be a cash cow for the bank this year,” he enthused.

The bank has been financing the coffee sector through their support to the recently launched Kenya Cooperative Coffee Exporters which is owned by cooperative societies and unions and from which they hope to post good forex and commission income.

Mr Muriuki disclosed that they had also begun to see a return on their investment in Kingdom Securities which followed the acquisition of a 60 percent stake at the then troubled Bob Mathews as it had already broken even.

On their plans to venture into Southern Sudan, Mr Muriuki said the Cooperative Bank of Southern Sudan was being registered and should start operating in June or July.

The bank entered into a joint venture with the Government of Southern Sudan which will hold a 30 percent with the remainder owned by Co-operative Bank.

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