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Kenyan finance minister raises budget deficit forecast

Comments (0) Africa, Latest Updates from Reuters, Politics

NAIROBI (Reuters) – Kenya is aiming for a budget deficit of 9.3 percent of GDP in fiscal year 2016/17 and plans to borrow 150 billion shillings ($1.48 billion) from external sources, probably by selling international bonds, officials said on Wednesday.

Finance Minister Henry Rotich said in a budget speech the deficit would be 691.5 billion shillings ($6.9 billion).

Kamau Thuge, the principal secretary at the ministry of finance, later told Reuters that figure would be equivalent to 9.3 percent of GDP.

Rotich gave the 150 billion shilling borrowing figure at a post-budget news conference. “We are still looking at accessing capital markets by way of sovereign bonds, we are looking at export credit arrangements and also bilateral and syndicated loans,” he said.

In April the finance ministry said the actual deficit in fiscal year 2016/17, which starts on July 1, would probably be around 6.9 percent of GDP, because ministries often struggle to spend their allocations.

“The failure to consolidate the fiscal balance any faster will be of some concern to markets,” Standard Chartered economist Razia Khan said. “Kenya’s accumulation of external debt has outpaced its ability to generate faster export growth to repay this debt.”

But Rotich said Kenya’s public debt “remains sustainable”, with the net present value of public debt to GDP below 50 percent and posing a “low risk of debt distress” based on assessments by the government, World Bank and International Monetary Fund.

“We remain committed to bringing the fiscal deficit down gradually to below 4 percent of GDP in the medium term,” he added. In the 2015/16 fiscal year ending this month, the forecast deficit was 8.7 percent of GDP, but has since been revised down.

“Our target to generate 1 million new jobs remains,” Rotich said, adding that he expected the economy to grow 6 percent in calendar year 2016 and by 7 percent in the medium term, compared with 5.6 percent growth last year.

The minister also outlined measures to boost revenue collection, including the potential introduction of a presumptive tax for those in the informal sector, who usually fall under the radar of the revenue authority.

“If everybody paid their fair share of taxes we would be in a better position to lower tax rates,” Rotich told lawmakers.

Thuge told Reuters local borrowing would remain nearly constant at 3 percent of GDP, ensuring local interest rates would not be under pressure.

 

($1 = 101.0000 Kenyan shillings)

 

(Reporting by Duncan Miriri. Editing by Elias Biryabarema and Catherine Evans)

 

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Kenya’s tourism earnings fall 3 pct in 2015

Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s revenue from its tourism sector dropped 2.87 percent last year to 84.6 billion shillings ($837.21 million), its tourism minister said.

Visitor numbers and earnings have plunged in the past four years as al Shabaab militants from neighbouring Somalia launched attacks on Kenyan soil in retaliation for Kenya’s military intervention.

Showing the depth of the fall, tourist arrivals fell from 1.8 million in 2011 to 1.18 million last year. The country earned 98.9 billion shillings in 2011 compared with the 84.6 billion shillings last year.

Najib Balala said the sector was on course for a recovery in 2018, in line with government plans, but cautioned that violent protests against the country’s electoral body could curb arrivals.

“A lot of people I meet are saying Kenya is maturing but when they see the incidents of the last weeks, they say we are going backwards,” he told Reuters on Monday.

“My concern is that, the efforts and the road map is working very well, I don’t want the political noise to interrupt that programme.”

Tourism is one of the main hard currency earners for Kenya.

President Uhuru Kenyatta’s government wants to bring in 3 million visitors a year according to its manifesto when it was elected in early 2013.

Efforts to revive the sector include boosting security, opening new source markets such as Nigeria and Poland and increased budgetary allocations to the sector.

Visitors are expected to rise by a third this year to 1.6 million and to recover to 1.8 million in 2018, matching a record high set in 2011.

($1 = 101.0500 Kenyan shillings)

 

(Reporting by John Ndiso; Writing by Duncan Miriri; Editing by Alison Williams)

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Will Kenya’s ambitious Konza City project prove doubters wrong?

Comments (1) Africa, Business, Featured

konza city

The construction of Kenya’s Konza City has begun, but will the city of the future fulfill its designers’ grand dreams?

When Kenya announced the hugely ambitious Konza City project in 2008, it was seen by most as a statement of intent by the President Mwai Kibaki. While the president is no longer in power, his dream of creating a tech-based city of the future, which would create a wealth of jobs, has remained at the forefront of Kenya’s Vision 2030 project.

The project aims to develop a strong, adaptive economy that turns Kenya into the leading tech nation within Africa. Konza City is to be the jewel in the crown of the project, and a city quite unlike anything seen on the continent before.

A grand vision

The main goal of the Konza City project is to revolutionize Kenya’s economy in terms of how it is structured, and how it develops throughout the 21st century. Kenya is one of Africa’s largest economies, with a GDP of $65.89 billion in 2015, yet up until 2013 75% of national assets were still in agriculture. As economies evolve, it is common for a shift into less production based means, and for a nation with Kenya’s climate it makes sense to redirect assets into areas that do not rely on uncontrollable forces of nature.

With Nairobi already a blossoming tech hub, the Kenyan government wants to create a designer city that both entices foreign investment and fosters local talent. Konza is to house 1,500 students and have an additional 35,000 homes for people working across its offices and research centers. The “Silicon Savannah,” as it has been dubbed, aims to be a hotspot of tech startups, and a regional base for global giants such as Google, Samsung and IBM.

What made the Konza City idea so bold was that this was not to be a glorified office space, but a genuine city with homes, schools and families being raised there. A bustling metropolis, built from scratch, is unprecedented as a feat of engineering and marketing, so unsurprisingly there have been obstacles.

The site of the future city

The site of the future city

Concerns over infrastructure and timing

The biggest worry for potential investors has been whether this new city can guarantee the everyday essentials that allow a place to run. The utilities that most of us take for granted – water, electricity and transport – are vital for a city to function.

Hamish Govani, Chairman of Kenya Association of Property Developers, voiced his concerns over power reliability earlier this year, saying, “By the time we come in to begin developments, we want to have guarantee of world-class infrastructure. We have big multinationals looking to set foot at Konza, we need proof that we will not be let down.”

The very same concerns were expressed by a project assistant for the Delegation of German Industry and Commerce in Kenya, Mr Thilo Gabriel Vogeler, who is interested in investing but said, “Since frequent power blackouts are a common occurrence in Nairobi, I would like to know how they will ensure reliability and constant supply 60km away.”

Other doubters have felt that construction would not begin in the time delineated under the plan, and it would therefore become an economic burden. However, the government has moved to silence such concerns by beginning the ground breaking for the first plots of land last month.

Moving forward

It appears that the Konza City project is truly beginning to move.

Konza Technology City Development Authority (KoTDA) CEO Eng John Tanui told reporters earlier this year that the first parcels of land are ready for investment now and that “we are completing the design for the provision of utilities including waste water management, street lighting, water, power and Internet systems to ensure that these are laid out in the right way.”

The project has interest from Blackberry, IBM, Google and many other multinational companies, but it is also ensuring that locals have an opportunity to invest and become part of something unique. ICT Cabinet Secretary Fred Matiang’i spoke at a news conference in October last year saying, “Together with the National Treasury, I am working on a Public Private Partnership framework that will see government source for funds to support local investors.”

If the project is a success, then 200,000 jobs could be created by 2030, and by 2018 the city aims to account for 2% of Kenyan GDP. With groundbreaking for construction already underway, investors from far and wide will be watching with interest, to see if the Konza City dream becomes a prosperous reality.

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Eric Kinoti: Young Kenyan serial entrepreneur

Comments (0) Africa, Featured, Leaders

Eric Kinoti

At age 32, Kinoti operates four businesses, including a tent manufacturing company with $1 million in annual sales.

Kenyan businessman Eric Kinoti says entrepreneurship is a journey. At age 32, he has already come a long way.

From a humble start selling eggs by day and working the night shift at a hotel, Kinoti has gone on to launch four companies, including the successful flagship Shades System East Africa, which manufactures canopies, military and party tents, gazebos, and car park shades.

The company, which Kinoti started when he was just 24 years old, has customers in several African countries including non-governmental and humanitarian organizations and reports annuals sales of $1 million.

Kinoti also founded and runs Alma Tents, a tent rental company; Bag Base Kenya Ltd., which manufactures bags from canvas remnants from the tent business; and Safi Sana Home Services, a cleaning company.

Forbes 30 Under 30

One of a growing number of Kenyan entrepreneurs, Kinoti has been recognized twice by Forbes as a top African entrepreneur and in 2014 was named to Forbes list of 30 Under 30 Most Promising African Entrepreneurs.

Born in Mombasa and raised in Mombasa and Meru, Kinoti went on to earn a degree in business management at Tsavo Park Institute. He became interested in business as a child. At 10, he worked as cashier in his father’s shop and sold snacks to his classmates at school.

After he finished college, he got a job as night cashier at a hotel in Malindi and spent his days buying and reselling eggs.

After a move to Nairobi, he tried to start business selling milk to hotels. But a breakthrough came when a customer asked him to supply a tent. Kinoti found that non-Kenyan companies dominated the tent business in his country, and the idea for Shades System was born.

Company expands in region

A shades system tent

Shades System, based in Nairobi, has expanded rapidly and now exports products to Somalia, Congo, Rwanda, Southern Sudan and Uganda. Customers include USAID, Toyota Kenya, Bata Company, and East African Breweries.

He said raising capital has been his biggest challenge.

At one point, he borrowed from a money-lender to start his first and saw his belongings sold off when he couldn’t pay. He ended up paying back the full amount, $20,000, plus $10,000 in interest.

But he persisted. Kinoti stressed that entrepreneurship is a journey, not an overnight get-rich success.

He said young entrepreneurs often jump from one idea to another in hopes of making fast money but that rarely pays off. “You cannot be rich in a day. You have to accept that entrepreneurship is a process,” he said.

Difficult lessons in entrepreneurship

He said he has also learned to be careful whom he trusts and not to rush decisions.

Early on, he trusted people with money and some ran off with it.

He also discussed his business ideas freely, only to find others used his ideas. The lesson? “As an entrepreneur, listen more than you speak,” he said.

Kinoti said he also made mistakes jumping in too quickly when a deal sounded good.

For example, he said opening Safi Sana Home Services was premature and the returns so far have not been very good so he is restructuring that business as a web portal offering home improvement solutions.

He said he might better have focused more attention on the tent business and waited to start a new company.

“It’s important to create a strong foundation,” he said. “Then you can proceed to another business.”

Entrepreneurship booms in Kenya

According to USAID, Kenya has become a center for entrepreneurship and innovation. The agency’s Development Credit Authority has sought to increase access to capital for small businesses and promising entrepreneurs.

In 2014, USAID mobilized $340 million in credit and enabled nearly 600,000 loans to small and medium-sized businesses.

The agency’s Yes Youth Can program has helped expand economic opportunities for young people through training and access to loans.

The hope is that young Kenyan entrepreneurs will be able to avoid the expensive moneylender trap that Eric Kinoti had to climb out of on his journey to creating a thriving business.

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Kenya Airways says fixing weaknesses found after forensic audit

Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya Airways said on Tuesday preliminary results of a forensic audit had helped it identify weaknesses in its systems and internal controls, and it was taking remedial action that included disciplining some staff.

The statement, following the audit by Deloitte Consulting, did not give details about the actions taken by those staff.

The airline has been working on a turnaround plan after more than three years of financial losses.

 

 

(Writing by Edmund Blair; Editing by Mark Potter)

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African banks want share of growing e-money market

Comments (1) Africa, Business, Featured

mpesa

A top East African bank competes with a major telecom in Kenya as mobile banking booms.

A top East African bank hopes to challenge a telecommunication company’s dominance in electronic mobile-payments service and gain a larger share of Kenya’s electronic banking trade.

Banks in Nigeria, Cameroon and Mali are making similar moves to tap into the continent’s mushrooming market in electronic payments.

In 2014, mobile money transactions generated $656 million in revenue in sub-Saharan Africa and that amount expected to double to $1.3 billion by 2019, according to the research firm Frost and Sullivan ICT.

In much of the world, banks are the leading providers of electronic payment services. But in Africa, where more people have mobile phones than have bank accounts, telecommunications companies have been able to dominate the market.

According to the World Bank, fewer than 25 percent of Africa’s 1.4 billion people have a bank account while 40 percent have a mobile phone.

Equity offers SIM card overlay

Now, Equity Bank, Kenya’s largest in the number of customers, and other banks want to tap into a growing market.

Equity, which also operates in Tanzania and Uganda, seeks to compete with M-Pesa, Safaricom’s popular mobile payments service.

Equity has begun providing its clients with a super thin SIM card overlay that enables them to access their accounts on their mobile phones.

The service, called Equitel, is powered by Safaricom’s rival telecom, Airtel Kenya.

Equity Bank contends that market should belong to the banking sector, not the telecoms.

“We have a major problem with the mobile provider also providing financial services,” John Staley, the bank’s chief of finance, innovation and technology said. “You cannot have the freight company controlling the tracks.”

M-Pesa enjoys popularity Kenya

Safaricom is the Kenya subsidiary of the global telecom colossus Vodafone Group, based in the United Kingdom.

Launched in 2007, M-Pesa has more than 12 million active users and processes more than $18 billion in transactions yearly.

The launch of Equitel follows a yearlong legal battle in which Safaricom raised questions about the security and privacy of Equity Bank’s SIM card plan. A Kenyan court ruled in favor of Equity, enabling the project to move forward.

Bank, telecom partner in Nigeria

Meanwhile, in Nigeria, GT Bank is partnering with Etisalat Nigeria, the nation’s third largest mobile operator to create GTEasySavers, a savings account that can be opened on a mobile phone.

Mobile banking is not as large a market in Nigeria as it is in Kenya. But with mobile penetration of 80 percent and only 57 percent of adults lacking bank accounts, it may be poised to take off.

The mobile market in West Africa is growing. It was valued at $17 billion in 2014 by the market research company Ovum. Mobile data revenue totaled $3 billion, up 30 percent from the year before.

Pan-African Ecobank is partnering with the telecom Orange Cameroon to enable Orange customers with Ecobank accounts to transfer money between the two services. The companies have launched the service in Cameroon and Mali and plan to extend it to Ivory Coast, Guinea Conakry and Niger.

Orange Money is currently available in more than a dozen countries in the Middle East and Africa. With over 16 million customers, the service transferred about $9 billion in 2015.

M-Pesa fails in South Africa

South Africa, where 75 percent of the adult population has banking services, provides a contrasting example of poor demand for a telecomm payment platform.

In May, Vodacom, a Vodafone subsidiary and the country’s largest mobile network, announced it was terminating its effort to attract South Africans to M-Pesa after the service failed to catch on in the continent’s most economically advanced nation.

The company had hoped to sign up 10 million South African users when it launched M-Pesa in 2010. However, by 2015, only one million people had signed up and only 76,000 were active on the platform.

“The success factors for M-Pesa in Kenya were not present in South Africa,” said Arthur Goldstuck, managing director of the technology research firm World Wide Worx.

Usage grows in other countries

Vodacom CEO Shameel Joosub said the company saw “little prospect” of M-Pesa being successful in the near term. The service will end June 30.

Vodacom said it would continue to offer M-Pesa in markets where banking access is more limited and M-Pesa usage is growing, including Mozambique, Tanzania, Lesotho, and the Democratic Republic of the Congo.

In Kenya and other countries where mobile transactions are popular, consumers likely will benefit from new competition in the e-money marketplace, according to a consultant with the World Bank.

“As long as pricing is low enough, mobile money services and healthy competition will benefit consumers and increase financial inclusion, tech consultant Martin Warioba said.

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Looking Back on Kenya’s First Startup Acquisition

Comments (0) Africa, Business, Featured

Weza-Tele-Founders

Kenyan financial technology startup Weza Tele was acquired by AFB financial group for $1.7 million, the first and largest acquisition of a tech startup in Kenya.

The startup-acquisition cycle is every Silicon Valley entrepreneur’s dream: a tiny idea that results in a multi-million dollar payout when a corporation recognizes the genius of your small-but-wildly-successful company. WhatsApp, the seemingly simple messaging service used around the world, was bought by Facebook for $19 billion; Skype, the Star Trek-like video calling system millennials had been dreaming of since childhood, was bought by Microsoft for $8.5 billion; and Clementine, an app that allows users to make conference calls without being tied to a cell phone, was bought by Dropbox for $100 million after less than one year on the market. In tech-intensive countries, these stories are hardly noteworthy because as soon as a new startup emerges, rumors abound regarding which major company will buy it.

This is not the case for countries like Kenya, where the startup industry is truly only starting up. In fact, the first-ever acquisition of a startup by a major company occurred in mid-2015 when AFB, the consumer finance group based in Ghana, purchased the Kenyan startup Weza Tele for $1.7 million.

A True Start Up

Weza Tele is truly the byproduct of the 21st century competitive yet collective experience: Weza Tele was created at Nailab, a co-working space that provides 3-6 month internships for budding entrepreneurs, and launched at DEMO Africa, a conference that hand picks innovative products and services from around Africa, in 2014. Weza Tele was founded by Hilda Moraa, Sam Kitonyi and Newton Kitonga and is “a leading provider of innovative value added mobility solutions in commerce, supply chain and distribution, and mobile payment options” available not only in Kenya, but also across Nigeria, Tanzania and Zimbabwe.

Weza Tela has two major existing business solutions: MyOrder, which makes supply chains for small and medium distributors transparent and gives greater visibility to individual manufacturers, and Odoo, which is a website-building application that provides a suite of add-ons including SMS ordering. In addition, Weza Tela offers services to streamline businesses’ SMS-ordering processes and can be hired for consulting services. Frost & Sullivan, the entrepreneurial company who awarded Weza Tele with its 2014 Entrepreneurial Company of the Year, said that “Weza Tele has excelled in an untapped market by tailoring flexible solutions for small scale supply chain sector. It offers cost-effective solutions to address the challenges faced by SMEs in the supply chain industry and provides valuable tools to drive their sales and marketing.”

Weza Tele myOrder

Selling Out Encourages Others to Buy In

After its 2014 launch at DEMO Africa, Weza Tela was met with major success, and purchased by AFB just one year later. AFB “provides credit access to customers in Africa through a range of financial products, including mobile loans and retail credit cards.” Launched in Ghana in 2010, AFB now operates in Kenya as well as Tanzania and has more than 400 retail partners. By purchasing Weza Tela, AFB will be able to get its foot in the door of markets in Nigeria and Zimbabwe.

This landmark acquisition, says Jessica Colaco (director of partnerships and community at iHub), is “history in the making as it opens doors for growing startups in this ecosystem. The Weza Tela team are a lighthouse for others in the Kenyan startup ecosystem” and will encourage others to continue working towards their goal. AFB’s purchase shows Africans that major, multi-national companies have confidence in homegrown ideas.

A Vote of Confidence for Homegrown Ideas

Weza Tele has promised customers that the transition will be seamless and services will not be interrupted. Should this transition go as planned, big things may be looming on the startup horizons for Kenya and beyond.

By demonstrating their confidence in Weza Tele through a massive purchase, AFB is not only showing young entrepreneurs that their ideas have value and may result in a big payday, but demonstrating to Africans in general that they do not need to rely on outside ideas to move their countries forward. If large financial institutions are willing to take the risk on relatively young startups, then perhaps more ideas will come to fruition through co-working spaces and conferences meant to showcase and launch the best and brightest.

Encouraging young leaders to create their own solutions to local problems is of the utmost importance for any community, particularly one that has had been so directly and heavily influenced by outside forces for centuries. It is ideas like those behind Weza Tele that show a deep understanding of the needs of local businesses. Hopefully, Weza Tele’s success story is just the first chapter for Kenyan technological innovation.

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Nairobi establishes itself as one of Africa’s leading tech hubs

Comments (0) Africa, Business, Featured

nairobi

Nairobi leads the way as Africa’s most recognized tech hub and it is set to get bigger.

Nairobi has been establishing itself as a tech hub for several years now. The high numbers of STEM graduates that come through the doors of the several colleges around the city have helped sustain this reputation. However, it is only in the past few years that the entrepreneurial ethos which fuels startups has really begun to flourish.

As things stand, Nairobi still has an unemployment rate of 40%, but the government is hopeful that by investing in the technological talent pool of the city, startup companies will help address this problem.

Quite simply, startups create jobs but only in recent years has the proliferation of mobile phones and the internet in Nairobi allowed tech startups to prosper.

Investing in the infrastructure of growth

Nairobi has had the potential to explode as a thriving tech hub for some time, but without the average person having access to the technology to provide a large customer base, the progress of the city was stifled.

However, Internet penetration has rocketed, with 43% of the Kenyan population having access in 2014, compared with only 14% in 2010. In addition to this, by 2014 82% of Kenyans had a mobile phone. These factors are instrumental in opening up markets for tech-based startups.

A prime example of this is the 2010 startup M-Farm that allows farmers to get instant access to market prices and where they can buy and sell goods at the click of a mobile phone button. The business was set up by three women who wanted to help farmers cut out middle men and make a greater profit. Co-founder, Linda Kwamboka sums up the importance of technological access by saying, “Mobile phones are the best way to go (for business).”

The enterprising nature of local people, together with the government, has ensured that the city and nation do not miss out on the opportunities that a tech centered industry could provide. In 2010, Nairobi’s iHub opened, a large complex for investors, entrepreneurs and tech graduates to converge and develop new ideas. In only 6 years, the hub has spawned 170 startup companies and created over 1,300 new jobs.

iHub in Nairobi

iHub in Nairobi

The iHub complex now seeks to be entirely self-funded and one of its creators, Erik Hersman told Forbes magazine that, “A group of people are investing in the iHub in order to help us grow…The iHub’s mission is to catalyze the growth of the Kenyan tech ecosystem.”

To help sustain such growth, the Kenyan government partnered with the firm Nailab to create a technology program worth $1.6 million that would provide funding and educational support to entrepreneurs. The support has worked.

By 2014, technology accounted for 8.4% of Kenya’s GDP, but this is a proportion that is continually rising. In fact in the summer of last year, Bloomberg reported that Kenya’s tech industry could be worth $1 billion over the next 3 years.

A city evolving

Despite the development in Nairobi, it is obviously a long way off catching up with the hugely prosperous cities of the developed world. But this is something that could well change. The range of startups is already hugely diverse, from laptop manufacturers like Taifa to the likes of Rehau HomeGas, which creates micro-biogas equipment that runs off cow manure.

New hubs for innovation are opening, with both the aforementioned startups coming from the newly established Nairobi Industrial and Technology Park. Moreover, the Economist Intelligence Unit has predicted that by the end of this year, Nairobi will be one of the 40 fastest growing urban economies on the planet.

What seems likely to maintain this meteoric rise is that the government continues to commit itself to investing further in the city’s development as opposed to treating its new success as a finished task. The country’s grandest plans center on a Techno City, which they hope to have opened by 2025. This complex would provide housing and work spaces for 200,000 professionals. Bloomberg reported that major corporations such as Samsung and Blackberry are already expressing interest.

When the US President Barack Obama visited Kenya last year, he spoke of an emerging economy and entrepreneurial spirit within the country.

The attitude of Kenya’s government, graduates and the people working within its tech industries can perhaps be summed up by a line from Obama’s speech that drew warm applause:

“Because of Kenya’s progress, because of your potential, you can build your future right here, right now.”

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Kenya’s Chase Bank reopening after liquidity scare

Comments (0) Africa, Business, Featured

The mid-size financial institution works to emerge from receivership after questionable loans discovered and top executives dismissed.

Chase Bank Ltd. in Kenya is reopening its branch offices and resuming online and mobile banking services this week as the troubled financial institution seeks to emerge from receivership with new management and a new majority owner.

The bank was abruptly closed by Kenyan regulators in early April after its chairman and managing director resigned because an audit revealed that the bank had loaned $80 million to its own directors and had allowed its bad debts to rise to $100 million.

Kenya Commercial Bank Group Ltd., Kenya’s largest bank and a Chase rival, agreed to acquire a majority stake in Chase Bank on April 19 and began reopening its branch offices and restoring online services.

Chase is the country’s 11th largest bank with assets of $1.4 billion. Chase has more than 40 branches and 100,000 customers. It is a mid-sized bank and has a mix of low and middle-income customers. Chase also operates Islamic banking services for wealthy business customers who trade with companies in the Middle East.

Chase, the third Kenyan bank to falter in less than a year, had reported a profit of $23 million in 2014 but recorded a loss of $7 million last year.

Social media rumors cause panic

The bank was closed on April 7 after hundreds of panicked customers made a run on the bank based on rumors of problems on social media, according to the Central Bank of Kenya, which took control of the bank after financial discrepancies emerged.

The trouble began after Chase released two conflicting financial statements. An audit uncovered hidden loans to bank directors. Chase dismissed the two bank executives and police have ordered their arrest.

The Central Bank of Kenya said in a statement that Chase “experienced liquidity difficulties” and was not able to meet its financial obligations after panicked customers began making large withdrawals.

Two other banks fail

Chase is the third Kenyan bank to be placed in receivership because of liquidity problems and questions of mismanagement within the past year as regulators have stepped up scrutiny of the country’s financial institutions.

Central Bank Governor Patrick Ngugi Njoroge

Dubai Bank, a small institution, was taken over by regulators in August and Imperial Bank, a midsize financial institution, collapsed in October. Police in March also ordered the arrest of the chief executive officer and five other executives at a fourth bank, National Bank of Kenya, where an audit was scheduled.

Central Bank governor Patrick Ngugi Njoroge has tightened regulatory control on the nation’s banking industry since he took office in July. Earlier this year, Njoroge ordered a moratorium on new bank licenses until an investigation into the health of the country’s banks is complete.

Too many banks for population size

Bank consolidations are likely going forward as Kenya has an oversupply of financial institutions.

Kenya, with a population of 40 million and a $61 billion economy, has more than 40 banks. By comparison, Nigeria, with more than four times the population and an economy nine times as big, has 22 banks.

This large number of financial institutions creates a competitive environment in which banks may take unwarranted risks. At the same time, Kenya has traditionally allowed banks to maintain relatively low reserves, making smaller banks vulnerable to runs.

One banker said the central bank should force banks into “arranged marriages” to winnow and stabilize the banking sector. Banks that refuse should lose their licenses, according to John Gacora, managing director of Kenya’s NIC Bank.

Public confidence at stake

Hoping to calm pubic fears, Njoroge said the central bank would offer support to any bank that suffered liquidity problems through no fault of its own.

Njoroge said he hoped the Chase re-openings also would restore public confidence in the country’s banking system, which he said was stable in spite of problems at the four banks.

Kenyan regulators said they received offers from six local banks and two foreign banks for Chase.

The central bank cited KCB’s reputation as a strong bank with long experience in Kenya in favoring the larger bank’s acquisition of Chase.

Opening Chase under the management of KCB “will improve the profile of the troubled lender by capitalizing on the sound reputation of KCB,” said Eric Munywok, an executive at Sterling Capital. “If KCB wasn’t involved, a lot of depositors might have fled.”

New owner must retain customers

Financial experts said Chase customers would be well served by KCB Group, which would gain as well.

Maurice Oduor, an investment manager at Cytonn, said the main question is whether clients will stay with the bank following the scare in early April. “Clients may go away unless KCB ups its game in client service.”

The new management has a year to demonstrate it can emerge from receivership, In the meantime, the central bank has placed a moratorium on payments to Chase creditors of Chase Bank until the new team comes up with a plan for dealing with the bank’s debts.

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Kenya KCB Group to manage and may buy closed Chase Bank

Comments (0) Africa, Business, Latest Updates from Reuters

NAIROBI (Reuters) – Kenya’s KCB Group has been appointed to manage Chase Bank and could buy a majority stake in the closed lender whose branches will reopen next week, the central bank said on Wednesday.

The Central Bank of Kenya said in a statement that an understanding had been reached with KCB on “modalities to reopen Chase Bank Ltd in the next few days and the eventual acquisition of a majority stake in the bank.” It said KCB would carry out due diligence to inform its decision on taking a stake.

Central Bank of Kenya Governor Patrick Njoroge told a news conference he had received nine indications of interest in the mid-sized lender that was put into receivership this month.

 

 

(Reporting by Duncan Miriri; Writing by Edmund Blair; Editing by George Obulutsa)

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