How Kenyan Banks Performed in 2023: Highlights - Money Weekly

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly.

This week:

• Banks release their financial reports for the year ending December 2023. Most of the banks reported growth in profits.
• President Ruto meets with CEOs of state-owned enterprises and gives them directives to implement austerity measures as well as remit 80% of net earnings to the Treasury
• The Kenya Revenue Authority (KRA) is likely to miss its tax collection targets by Ksh330 billion. This comes even after the government's major reforms to increase collection.
• The Nairobi Securities Exchange (NSE) emerges as one of the best-performing stock markets in the world, attracting BlackRock, a major global asset manager.

For this and much more. Let’s dive in.

Highlights From Kenyan Banks' 2023 Financial Year Reports

Kenyan banks have been releasing their financial reports for the year ending December 2023. Most of the banks recorded growth in profits, save for Equity Bank, which had a 6.48% drop attributed to the doubling of its provisions for bad loans. 

Many lenders reported an increase in net interest income (interest from loans). For instance, I&M’s grew by 25%, Sidian Bank’s by 22%, Equity Bank by 21% and DTB Bank by 20.5%. There was also a notable increase in non-interest income (transactions and foreign exchange trading), with I&M at 10% and Co-op Bank at 2.8%.

Customer deposits grew in banks such as NCBA, Prime Bank, Equity Bank, I&M and Sidian Bank. Additionally, I&M and Co-op’s subsidiaries recorded growth, boosting the overall performance.

Four out of the seven banks announced dividends 

• NCBA: Ksh4.75 per share 
• Co-op Bank: Ksh1.50 per share
• Equity Bank: Ksh4 per share
• DTB Bank: Ksh6 per share

Here is a summary of the banks’ performance compared to their 2022 performance.

President Ruto Directs Parastatals to Cut Expenditure

President Ruto had a meeting with chief executive officers of state corporations and issued directives aimed at propping up the Treasury coffers and reducing drain on the exchequer. These directives included:

• To reduce recurrent budgets by 30%
• All commercial state corporations to remit 80% of their profit after tax to the Treasury
• Regulatory commissions to remit 90% of their surplus funds to the National Treasury

The directives are supposed to provide the Treasury with much-needed cash and reduce the burden of supporting some of the loss-making state-owned enterprises.

By the end of the 2022/2023 financial year, there were 526 state-owned corporations, public funds, semi-autonomous government agencies, teacher training centres (TTCs) and vocational education and training (TVETs). These entities realised Ksh196.4 billion in surpluses for the year ended June 30, 2023. Their total revenues for the same period amounted to about Ksh1.4 trillion but their expenses totaled about Ksh1.3 trillion.

The following are the top 10 loss-making state agencies:

• Kenya Railways Corporation
• Roads Annuity Fund
• Kenyatta National Hospital (KNH)
• Kenya Power and Lighting Company (KPLC)
• Kenya Medical Supplies Authority (KEMSA)
• KeNHA Levy Fund
• Kenya Revenue Authority (KRA)
• East African Portland Cement Company (EAPCC)
• Kenya National Highways Authority (KeNHA)
• National Transport and Safety Authority (NTSA)

Similarly, the government has ordered the suspension of production or procurement of corporate wear (branded clothing items) as well as merchandise such as umbrellas, calendars, diaries, bags, cups, flasks, keyholders, notebooks, and any other promotional materials.

KRA to Miss Targets Amid eTIMS Challenges 

According to the Parliamentary Budget Office (PBO), the Kenya Revenue Authority (KRA) is likely to miss its tax collection target for the 2023/2024 financial year by Ksh330 billion. 

In the last eight months, the authority has only been able to raise 55% of the targeted Ksh2.787 trillion, leaving it with four months to collect the remaining Ksh1.2 trillion. The Ksh330 billion will be 13.2% below target.

The taxman's underperformance comes in a period where the government has increased taxation, widened the tax pool, cut development expenditures, and increased borrowing both domestically and externally.

Meanwhile, the electronic Tax Invoice Management System (eTIMS) registration deadline is closing in and KRA has only been able to register 186,530 taxpayers out of the targeted 915,000. The deadline is set for March 31. KRA warns that businesses that do not onboard will not be eligible for tax refunds and it will be difficult for them to do business with other businesses. 

On the other hand, the government has come up with a committee to design a temporary solution to exempt farmers from the requirement to produce electronic invoices for their sales. This committee is specifically set up to help avocado and macadamia farmers, who would be the most affected by the regulation.

NSE Sets Performance Record as it Attracts a Global Player

The Nairobi Securities Exchange (NSE) has been on an upswing in 2024, recording its highest single-day turnover totaling Ksh3 billion on Monday, March 25, and trading over 141 million shares.

This upswing has been remarkable, making the NSE emerge as the world's best-performing stock market in 2024 with approximately 40% in US Dollar returns.

The exemplary performance has been driven by the strengthening of the Kenyan shilling, which has appreciated by 22% since January.

The banking sector's performance has also pushed the resurgence of the stock market

To rubberstamp the world-class performance by the NSE, BlackRock, one of the world’s largest asset managers, has made an investment in the NSE just as the stock market is emerging from its worst year in history.

Government News Round-Up  

For the better part of Tuesday, patients using the National Health Insurance Fund (NHIF) cards were forced to wait or pay cash because of a system outage. The outage is reported to have started on Monday night and had not been resolved by Tuesday evening. This comes amid NHIF’s challenges with health facilities across the country over unpaid debts.

In the meantime, civil servants living in government-owned houses might have their rent tripled. Housing Principal Secretary, Charles Hinga, has forwarded a proposal to the Treasury asking for permission to review rent for the 56,892 civil servant houses. The rent for these houses has not been reviewed in 23 years. The government could potentially collect rent amounting to Ksh1.524 billion compared to Ksh1.018 collected in  the financial year 2021/2022.

Keeping with civil servant news, state entities are struggling to remit pension and pay-as-you-earn (PAYE) deductions. In total, the entities’ unremitted deductions amounted to Ksh220.81 billion. These deductions include: 

• Pension: Ksh47.6 billion
• PAYE: Ksh25.3 billion
• Sacco deductions: Ksh2.68 billion
• Staff loan deductions: Ksh2.47 billion
• National Social Security Fund (NSSF): Ksh407.36
• NHIF: Ksh80.92 million

These entities have been experiencing tough times with mounting losses, mismanagement, and reduced state financial support.

Another government entity facing tough times is the government printer. The printer is seeking a Ksh3.6 billion additional budget allocation to upgrade its equipment, some of which date back to the 1930s and 1980s. 

Business News Round-Up

Kenya Airways, Kenya’s flag carrier, has turned a corner by announcing an operating profit after seven years. The airline recorded a Ksh10.5 billion operating profit for the year ended December 31, which was a significant improvement from a loss of Ksh5.6 billion in 2022. Nonetheless, the company still made a loss after tax of Ksh23 billion, though better than the Ksh38 billion loss in 2022. The improvement has been attributed to a 35% growth in passengers, which translated to a 53% growth in revenue to Ksh178 billion.

As Kenya Airways turns a corner, the Kenya Commercial Bank (KCB) Group plans to borrow $200 million (Ksh26.5 billion) to bail out its Kenyan banking subsidiary. The Kenyan subsidiary saw its capital grow from Ksh 85.9 billion a year earlier to Ksh114.3 billion but its loan book grew faster, resulting in reduced buffers against minimum capital requirements. 

Moving internationally, James Finlay, a UK multinational, made $23.6 million (Ksh3.1 billion) from the sale of their tea business in Kenya to LOLC Holdings, a Sri Lankan firm. LOLC bought 85% of James Finlay’s business and the other 15% was ceded to the community through Kipsigis Highlands Multipurpose Co-operative Society.

Staying with international news, some European Union (EU) countries, including France, Denmark, and Sweden, are proposing to restrict the export of used clothes. The restriction will impact the mitumba industry in Kenya highly, as the sale of second-hand clothes employs over 2 million Kenyans. The European countries are proposing that the EU apply the Basel Convention to used clothes, which would require the EU countries to develop ways of recycling textiles within the bloc.

Agriculture News Round-Up

Kakuzi, a listed agribusiness and superfoods producer, is set to ship out 20 metric tons of Hass avocado to India at the end of the month. This inaugural shipment will be the initiation of Kakuzi’s market diversification strategy. Initially, the firm supplied to Europe, China, and the Middle East. Malaysia is another market where Kakuzi is looking to export its avocado’s and macadamia’s.

As Kakuzi explores new markets, flower farmers will now benefit from the UK's suspension of the 8% duty fee on fresh-cut flowers. This development comes as a relief, as 2023 saw a five-year low in the amount of fresh-cut flowers exported. The duty suspension is expected to enable flower farmers to earn more.

However, it is not all access and duty suspension in the world of agriculture. The European Union (EU) is putting a hold on buying Kenyan coffee that is grown on deforested land. The new EU Deforestation Regulation (EUDR) takes effect on December 30, 2024. This ban will affect rubber,cocoa, wood, palm oil, beef, and soy production and sale across the world. Producers selling to the EU will have to provide proof that the land used for production has not been recently deforested.

While the EU is regulating their markets, locally, farmers are complaining. Some coffee farmers have not received payment for their coffee sold at the Nairobi Coffee Exchange (NCE) as far back as December 2023. The payment delays are despite the buyer releasing the cash. The Direct Settlement System (DSS), which was meant to streamline payments to farmers, has been marred with issues such as payments to wrong accounts, recalls of payments from farmers, unauthorised change of grower’s code and bank details and unexplained partial payments. 

The coffee farmers are facing these challenges despite Kenya’s coffee exports nearly doubling between October and December 2023. 

Sugar imports, on the other hand, have dropped to a seven-month low after sugar factories resumed operations. In February, the factories milled 63,075 metric tons of sugar, the highest production since January 2023. The high production has also contributed to the drop in sugar prices for consumers.

Other News in a Snapshot

• The Competition Authority of Kenya (CAK) has moved to reduce the fines it has rendered to companies. The relief will only apply to companies willing to employ mitigation measures, first-time offenders, inadvertent breaches, or those willing to cooperate. A company willing to acknowledge infringement will receive 1% relief on its fines, while those that share information with the authority will receive 0.5% relief. Terminating the breach immediately will earn the offending company 1% relief or 2% relief if the breach was inadvertent.
• A lack of money is hindering farmers from benefiting from the government’s subsidised fertiliser. The government fertiliser is Ksh4,000 cheaper than market fertiliser. However, there are farmers being left out of the program for various reasons, such as lack of money, no knowledge of the existence of such a program and no or late notification of when to pick the fertiliser.
• Water providers are looking to do away with subsidies as county governments are reportedly making late payments, as late as a year. This will likely hike the price of water for consumers, which some of them are already complaining is high, considering the current economic situation. 
• February marked a new peak in electricity demand, signalling an increase in economic activity. However, this coincided with the second lowest month of electricity production in the country; hence, Kenya Power and Lighting Company (KPLC) had to import the deficit from neighbours, Ethiopia and Uganda.
• Esther Mworia, the Principal Secretary for Technical and Vocational Education Training (TVET), said that the government has rolled out a project to certify artisans with technical skills despite their educational background. The certification will allow the artisans access to jobs in government and private institutions.
• The Hustler Fund has received a 70% repayment rate, with Kenyans borrowing Ksh49 billion and paying back Ksh37 billion. Currently, 22 million Kenyans have opted into the government debt facility. According to Cooperatives, Micro, Small, and Medium Enterprises Cabinet Secretary Simon Chelugui, there are 10 million Kenyans left out of the formal financial channels, and Hustler Fund aims to reduce that over time.