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Who Owns Kenyan Banks?

While banks have begun to adhere to disclosure requirements spelt out in the prudential guidelines issued by the Central Bank of Kenya (CBK) much more needs to be done, particularly pertaining to competition policy and regulation to put checks and balances on the monopolisation of the banking sector in Kenya. 

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Banking in Kenya dates back to the pre-colonial periods. The first banks largely concentrated on financing international trade along the Europe-South Africa–India axis, but later diversified operations to tap the opportunities for profitable banking created by a growing farming settler community and pioneer traders in the local economy to whom they provided deposit and credit facilities. 

Indian money lenders operating quasi bank services as early as the 18th century were probably the first bankers but the first recognisable bank was Jetha Lila Bankers from India, which was established in Zanzibar in 1880. In 1889 the National Bank of India appointed the trade house of Smith Mackenzie to be their agent in Zanzibar. Smith Mackenzie had a Mombasa branch in 1887 which was taken over by the Imperial British East Africa (IBEA) in 1888.  The National Bank of India established its own office in Zanzibar in 1892. In July 1896 the National Bank of India established a branch in Mombasa renting premises from Sheriff Jaffer. 

In April 1909, the East Africa Post Office Savings Bank Ordinance was passed and in April of the following year, the Ordinance for the Regulation of Banks established in the East Africa Protectorate was passed.  The former Ordinance established the first bank in the formal sense while the latter enabled the National Bank of India to become the first commercial bank. By 1911 there were only three banks: The National Bank of India, The Standard Bank of South Africa that came in December 1910 which later merged with Anglo-Egyptian Bank Ltd to form Barclays Bank in 1926 and Kathiawad and Ahmedabad Banking Corporation which had a short-lived presence in Mombasa from 1910 to 1915. 

In 1920 the East Africa Protectorate was declared a colony of the British Empire and its name changed to Kenya. The new colonial starters helped the Banks grow rapidly mainly through European Deposits and Asian customers. The banking services were not available to Africans, the only banking sources for Africans was the Post Office savings bank which started in 1910 as a department of the Colonial Postal service, even then the service was only available in places where Officials of the colonial service were stationed and therefore did not reach the majority of Africans who resided in rural areas.

The steadily growing economy in Kenya would soon lead to an influx of new banks between 1950 and 1959. In 1951 the Dutch bank Nedelandsche opened a branch in Nairobi. It was followed by the Bank of India which opened its first branch in Treasury square in Mombasa on January 17th 1953 and the Bank of Baroda on December 4th of the same year with its first branch also in Mombasa. The Pakistan based Habib Bank AG Zurich Ltd came in 1956 while the Ottoman Bank and Commercial Bank of Africa (CBA) rounded off the rush by establishing branches in the country in 1958.

After Indian attaining independence from Britain in 1947 and the subsequent hiving off of Pakistan, India changed its name in 1958 to National Oversees and Grindlays bank later called National and Grindlays Bank following its merger with Grindlays bank another landing based bank which traced its roots to Calcutta India. By 1951 the Banks had expanded its branches considerably but employment opportunities for Africans in the Banking industry took a long time to materialize. Indeed, it was not until June 1963 a few months before the country attained independence that the first African manager of a Bank branch Peter Nyakiamo was appointed. 

After independence, the changing landscape of banking began to note the entrance of fully indigenous banks. In June 1965 the first fully locally owned Commercial Bank, the Cooperative Bank of Kenya was registered as a Cooperative Society; initially, it served the growing farming community. Cooperative bank as it came to be known commenced its operations as a Bank on January 10th 1968.  The first fully Government-owned Bank the National Bank of Kenya was established on June 19th 1968. In 1971, the Kenya Commercial Bank was formed following the merger of the National and Grindlays Bank, with the government owning a 60-per cent majority stake. It took the poll position as the largest of the country’s commercial banks in terms of deposits and number of branches.

The formation of the Government-owned Banks had the desire to fight the speeding of the provision of affordable banking services to the majority of the population. It also prompted Foreign-owned bank to take measures to remain relevant in the Kenyan markets and beyond.  Today, according to the Bank supervision annual report 2017, Kenya currently has 44 banks. 31 of the banks are locally owned while the remaining 13 are foreign-owned. Among the 31 locally owned banks, the government of Kenya has a shareholding in three of them, 27 of them are commercial banks and one is a mortgage finance institution, known as Housing Finance.

Kenya Banking Sector

Illustrated by Mdogo / The Elephant

Of the 44 banks, ten are listed on the Nairobi Securities Exchange with respect to the names of their shareholders namely Barclays Bank of Kenya Ltd, Stanbic Bank Kenya Limited, Equity Bank Ltd, Housing Finance Ltd, Kenya Commercial Bank Ltd, NIC Bank Ltd, Standard Chartered Bank (K) Ltd, Diamond Trust Bank Kenya Ltd, National Bank of Kenya and Co-operative Bank of Kenya Ltd. The shareholding structure of these banks constitutes, one that is state-owned, six locally owned and three that are foreign-owned. 

Together, they act as representatives of local, foreign, state, single and block shareholding in Kenya. 

In 2016, in the wake of the collapse of three lenders —Dubai, Imperial and Chase banks — precipitated by weak corporate governance practices that allowed irregular issuing of loans to politically connected customers, wanton insider lending and running of parallel banks, the Central Bank of Kenya issued orders for banks to disclose top shareholders on their websites. An outcome of this has been greater transparency and public trust. However, as this analysis illustrates, is a network of individuals, companies and banks who are the major shareholders of Kenyan banks.

Let us examine this?

The National Bank of Kenya’s two key shareholders are the National Treasury of Kenya and the National Social Security Fund (NSSF). The NSSF holds 48.1% of the ordinary shares as well as 20.7% (253 million) of the non-cumulative preference shares in the Bank. The National Treasury holds 22.5% of the ordinary shares as well as 79.3% (900 million shares) of the Bank’s non-cumulative preference shares. The remaining 29.5% of the ordinary shares are held by the general public through the NSE namely, Kenya Reinsurance Corporations, Best Investments Decisions Ltd, Co-op bank custody a/c 4003a, Craysell Investments Limited, NIC Custodial Services a/c 077, Equity nominee Ltd a/c 00084, NBK Client a/c 1( Anonymous) and Eng. Ephraim Mwangi Maina who has 0.3% shares.

Kenyan Banks: Shareholding

Illustrated by Mdogo / The Elephant

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Co-operative Bank of Kenya public and was listed on December 22nd 2008.

Shares previously held by the 3,805 Co-operative Societies and unions were ring-fenced under Co-op Holdings Co-operative Society Ltd which became a strategic investor in the Bank with a 64.56% stake (3 Billion shares), followed by Gideon Maina Muriuki with 1.9% shares, Kenya Commercial Bank nominees a/c 915B 0.8% shares, NIC Custodial Services a/c 077 0.7% shares,Stanbic Nominees Ltd a/c Nr  1030682 0.5% ,Aunali Fidahussein Rajabali and Sajjad Fidahussein Rajabali 0.4%, Amarjeet Balooobhai Patel and Baloobhai Chhotabhai Patel, Old Mutual Life Assurance Company,Kenya Reinsurance Corporations and Standard Chartered Nominees Resd a/c ke11443 hold 0.3% shares each. 

Co-op bank custody a/c 4003a (anonymous) has shares in two banks, National Bank of Kenya and Standard Chartered.

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On 31st December 2014, Equity Group holdings PLC  finalized an internal restructuring that culminated in its conversion into a non-operating holding company, Equity Group Holdings Limited (EGHL) in order to further meet its objectives. The Bank arm was founded in 1984 as Equity Building Society (EBS). In 2006, the Bank was listed at the Nairobi Securities Exchange where it has become the largest Bank by market capitalization. The listing also attracted Helios, a strategic investor, to invest USD 185 million in 2007. 

Arise BV is the top investor at Equity Bank Limited with 12% shares. Aris-constituting Norfund, FMO and Rabobank-paid kes17.6 billion for a share of Equity Group Holdings KES147 billion market valuation. Aris took over the shares held by Norfininvest.

Other shareholders include James Mwangi and British American Investment Company Kenya Ltd with 127 Million shares, Standard Chartered Nominees with 121 Million shares, Equity Bank ESOP 117 Million shares, Standard Chartered Kenya Nominees Ltd a/c 107 Million Shares, Fortress Highlands Ltd 101 Million shares, Equity nominees Ltd a/c 93 Million shares, Stanbic Nominees Ltd a/c and Aib Nominee a/c Solidus Holdings Ltd hold 92Million shares. 

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Kenya Commercial Bank, Eastern Africa is the oldest and largest commercial bank started its operations in Zanzibar as a branch of National Bank of India In 1896. The bank extended its operation to Nairobi in 1902, which had become the headquarters of the expanding railway line to Uganda. In 1975, The Government of Kenya acquired majority shareholding and changed the name to Kenya Commercial Bank. In 1988, the Government sold 20%of its shares at NSE through an IPO that saw 120,000 new shareholders acquire the bank. The National Treasury is the top investor at Kenya Commercial Bank with 17.5% shares, followed by National Social Security Fund (NSSF) with 173 Million shares, Standard Chartered Nominee a/c with 69 Million shares, Standard Chartered Nominees Ltd a/c with 63 Million shares,CFC Stanbic Nominees Ltd a/c with 61 Million shares, Standard Chartered Kenya Nominee a/c with 58 Million shares, Standard Chartered Kenya Nominees Ltd a/c with 52 Million shares ,Standard Chartered nominees a/c ke002382 with 46 Million shares, Standard Chartered nominees a/c ke9688 with 45 Million shares and  Standard Chartered Kenya nominees non-resd a/c 9069 with 36 Million shares.

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Amalgamated Banks of South Africa (ABSA) Group Limited formerly known as Barclays Africa Group Ltd has the highest shares, 68.5% at Barclays Bank of Kenya, followed by Standard Chartered Nominees Resd a/c ke8723 e with 75 Million shares, Standard Chartered nominees resd a/c ke11401  with 46 Million shares, Kenya Commercial Bank Nominees Limited a/c 915b with 41 Million shares,Standard Chartered nominees resd a/c ke11450 with 38 Million shares, Kenya Commercial Bank Nominees Limited a/c 915a with 34 Million shares, Standard Chartered nominees a/c 9230 and Standard Chartered nominees non-resd. a/c 9913 hold  23 Million shares, Goodwill (Nairobi) Limited a/c 94 with 21 Million shares and the Jubilee Insurance Company of Kenya Limited with 20 Million shares.

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Standard Chartered Bank Kenya Limited was established in 1911 with the first branch opened in Mombasa Treasury Square. The Bank was listed on the Nairobi Securities Exchange in 1989. The public shareholding is just over 25% (remainder held by Standard Chartered PLC) and comprises over 30,000 shareholders. Standard Chartered Holdings is the top shareholder with 73.5% shares and operates as a subsidiary of Standard Chartered Holdings International B.V.  Standard Chartered Holdings (Africa) BV is an Overseas UK company opened on 17 May 2002. Kabarak Limited follows with 3.5 Million shares, Co-op Bank Custody a/c 4003A with 1.9 Million shares , Standard Chartered Kenya Nominees – a/c KE002382 and Standard Chartered Nominees – resd a/c KE11450 they both hold 1.7 Million shares, Standard Chartered Nominees – a/c 9230 they both hold 1.5 Million shares, Kenya Commercial Bank Nominees Limited – a/c 915B and Standard Chartered Africa Limited, they both hold 1.4 Million shares, Old Mutual Life Assurance Company Limited  with 1.3Million shares and Standard Chartered Nominees – resd a/c KE11401 holds 1.1Million shares. 

Standard Chartered Kenya Nominees Ltd a/c (anonymous)  has almost equal shares in two banks, Equity Bank limited and Kenya Commercial Bank.

Standard Chartered nominees a/c ke002382 (anonymous) has shares in two banks, Diamond Trust Bank and Kenya Commercial Bank.

Standard Chartered nominees a/c ke11450 (anonymous) has shares in two banks, Housing Finance and Barclays Bank of Kenya

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Stanbic Bank Kenya Limited (SBK) was established in 1958 when Ottoman Bank incorporated its first subsidiary in the region. In 1969, Ottoman Bank sold its Kenyan operations to National and Grindlays Bank (NGB Kenya) making its exit from the East African market. Stanbic nominees ltd a/c nr00901 is the top shareholder at Stanbic bank with 60.0% shares, followed by Standard Chartered nominees non-resd. a/c 9866 with 34 Million shares, Standard Chartered nominees non -resd. a/c 9867 with 13 Million shares, Standard Chartered Kenya nominees Ltd, a/c ke20510 with 9 Million shares, Standard Chartered Kenya nominees Ltd a/c ke002012 with 8 Million shares, Standard Chartered nominees Ltd non-resd a/cke11663 with 7 Million shares, Standard Chartered nominees non-resd. a/c ke9053 with 5 Million shares, the Permanent Secretary to the Treasury of Kenya with 4.3 Million shares, Standard Chartered nominee account ke17661 with 4.1 Million shares and Standard Chartered Kenya nominees ltd a/c ke23050 with 3.6 Million shares.

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Diamond Trust Bank Group is an African banking group active in Burundi, Kenya, Tanzania, and Uganda. It has operated in East Africa for over 70 years. It is an affiliate of the Aga Khan Development Network (AKDN) and the flagship of DTB Group is Diamond Trust Bank (Kenya), which was founded in 1946.  Aga Khan Fund for Economic Development is the top shareholder at Diamond Trust Bank with 16.5% shares, followed by Habib Bank Limited with 45 Million shares, The Jubilee Insurance Company of Kenya Limited with 27 Million shares, Standard Chartered Nominees a/c KE18965 and ,Standard Chartered Nominees a/c KE18972  have 5.2 Million shares, The Diamond Jubilee Investment Trust (U) Limited with 3.8 Million shares, Standard Chartered Nominees a/c KE002382 with 3.5 Million shares, Aunali Fidahussein Rajabali and Sajjad Fidahussein Rajabali with 3.3 Million shares, Standard Chartered Nominee Non Resd a/c KE11752 and CFC Stanbic Nominee Limited a/c NR1873738 have with 2.7 Million shares.

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Housing Finance Limited is a large mortgage finance company in Kenya. The company was established in November 1965, to promote a savings culture and homeownership among the citizens of newly independent Kenya. Major investors in the company include the Commonwealth Development Corporation (CDC), whose shareholding at one time was as high as 60%, and the Government of Kenya, which at one time owned 50% of the company. CDC has since divested from Housing Finance Limited and the Kenyan Government has substantially reduced its shareholding.

In 1992 Housing Finance Company of Kenya became listed on the Nairobi Stock Exchange. 

Britam Investment Company (Kenya) Ltd is the top shareholder at Housing Finance with 19.9% shares, followed by Equity Nominees Limited a/c 00104 with 44 Million shares, Britam Insurance Company (Kenya) Ltd with 33 Million shares, Britam Insurance Company (Kenya) Ltd with 23 Million shares,Standard Chartered Nominees Resd a/c KE 11401 with 14 Million shares, SCB a/c Pan African Unit Linked FD with 11 Million shares,Permanent Secretary Treasury with 8 Million shares,Kenya Commercial Bank Nominees Ltd a/c 915B with 5 Million shares,Standard Chartered Nominees Resd a/c KE11450 and Kenya Commercial Bank Nominees Ltd a/c 915A have 4 Million shares. 

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Investments & Mortgages Limited was formed as a private company providing personalised financial services to business people in the Nairobi area. In 1980, I&M, as the company was known at that time, was registered as a Financial Institution under the Banking Act. Following changes in the regulations of the Central Bank of Kenya, I&M became a commercial bank in 1996. In 2013, I&M Bank created I&M Holdings Limited, as the holding company of all the group’s businesses and subsidiaries. The holding company’s shares of stock are listed and publicly traded on the Nairobi Securities Exchange under the symbol I&M. Minard Holdings Limited is the top shareholder at I&M Holdings with 19.9% shares, followed by Tecoma Limited with 76 Million shares, Ziyungi Limited with 73 Million shares, Standard Chartered Kenya nominees Ltd a/c ke002796 with 41 Million shares. 

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Kenya Reinsurance Corporation has shares in two banks, Cooperative Bank and National Bank of Kenya.

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National Social Security Fund (NSSF) has shares in two banks, National Bank of Kenya and Kenya Commercial Bank.

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NIC Custodial Services a/c 077 (anonymous) has shares in two banks, Cooperative Bank of Kenya and National Bank of Kenya. 

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The National Treasury has shares in two banks, Kenya Commercial Bank and National Bank of Kenya. 

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The Jubilee Insurance Company of Kenya Limited has shares in two banks, Diamond Trust Bank and Barclays Bank of Kenya.

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Banks play an important role in the economy of a country. When banks efficiently mobilize and allocate funds, this lowers the cost of capital to firms, boosts capital formation, and stimulates economic activities. Thus, weak governance in the banking sector can have far-reaching consequences to the economy of a country. In the recent past, the banking sector in Kenya has witnessed a number of corporate governance issues that sent jitters among millions of bank customers resulting in a confidence crisis. While banks have begun to adhere to disclosure requirements spelt out in the prudential guidelines issued by the Central Bank of Kenya (CBK) much more needs to be done, particularly pertaining to competition policy and regulation to put checks and balances on the monopolisation of the banking sector in Kenya. 

Dataset

This story was produced in partnership with Code for Africa’s iLAB data journalism programme, with support from Deutsche Welle Akademie.

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Juliet Atellah is a data journalist based in Nairobi, Kenya

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The Drivers of Inflation During the COVID-19 Pandemic

The drivers of inflation during the COVID-19 pandemic period resulted from demand-pull inflation, cost-push inflation and money supply.

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The Drivers of Inflation During the COVID-19 Pandemic
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Jane Muthoni can still put together a tasty ‘ugali-madondo’ dish, a local specialty of Makongeni composed of maize flour and beans in a savory stew.

Trouble is, the dish and other tasty delicacies cost a lot more to make now than they did back in 2015 when she started the business, thanks to the hidden economic forces.

To operate her popular cafe, known by locals as a “kibanda”, Muthoni says she has to pay three times as much for charcoal, and 30 percent more for kerosene, her primary cooking fuels. On top of that, the price of food ingredients is also up – maize flour is up more than 12 percent.

While not all items in the Kenyan economy are experiencing this price inflation, the rising costs are putting extra pressure on businesses that are already struggling with losses related to the health impact of the COVID-19 pandemic.

Inflation generally refers to the upward price movement of goods and services in an economy. It represents the overall loss of purchase power of money. The more prices soar upwards, the less each Kenya shilling is worth.

The Kenya National Bureau of Statistics (KNBS) measures inflation using the Consumer Price Index (CPI). CPI is measured by a weighted average cost of a basket of selected goods and services such as food, housing, health, transport and so on. The inflation rate is typically the average change in the CPI over time, say year to year.

Muthoni, like many other Kenyans, does not necessarily understand why the prices of the items change over time.

This article assesses three drivers of inflation during the COVID-19 pandemic.

1. Demand-Pull Inflation

When the market demand for goods and services, such as flour, beans, charcoal, transport and others that Muthoni needs to run her çafe, outgrows the market supply, it causes demand-pull inflation.

It starts with an increase in demand by consumers, and sellers will react to that demand by increasing their supply. This leads to pressure on the scarce supplies making sellers raise their prices. This is one of the scenarios that result in inflation.

A marginal increase in inflation is observed between March and April in the graph above. This can be attributed to the demand-pull inflation as Kenyans were driven to panic buying and stocking of essential supplies such as food in anticipation of what would happen following the confirmation of the first COVID-19 patient in the country. The growth in aggregate demand resulted in a reduced availability of these goods causing higher prices hence the slight increase in the inflation rate.

Muthoni grappled with this increased cost on food supplies for her cafe which raised her expenses – cutting into her profit margins.

Another reason for demand-pull inflation could have been the depreciation of the Kenya shilling which in turn would increase import prices and reduce prices of exports. This meant fewer people had capacity to import while exporters would earn more. Since Kenya relies heavily on imports, this resulted in a growth of the total demand of goods and services in the economy

To mitigate the effects of the COVID-19 pandemic to the Kenyan economy, the Government approved tax reduction and relief measures that were effected from the 25th April 2020.

This meant that taxpayers had more disposable income. It would be expected that the tax reduction would have raised demand, which would drive the price of goods and services upwards.

However, the reverse is observed on the chart above as the inflation rate steadily decreased from May onwards. This can be explained by the fact that some Kenyans lost jobs (estimated at 1.7 million by the KNBS), some received pay-cuts whereas others, in informal employment, were not eligible.

2. Cost-Push Inflation

When supply costs of goods and services rise due to increasing cost of production or raw materials, and demand remains the same, prices will rise. This will cause cost-push inflation.

Cost-push inflation can be attributed to the expectation of inflation where people foresee prices for goods or services rising. The marginal increase in inflation observed between March and April can be attributed to the uncertainty of the effect of the COVID-19 pandemic.

This could have affected Muthoni’s business as the increased cost of food supplies was transferred from the farmers to producers, from wholesalers to retailers and finally borne by customers like her.

The depreciation of a currency rate can also cause cost-push inflation as it leads to an increase in the prices of imported goods such as raw materials for production. In return, producers transfer this growth in prices to consumers, which results in inflation.

3. Money Supply

All the currency and other liquid assets in an economy is referred to as money supply. It includes both cash and deposits that can be used almost as easily as cash. When there is more money supply in circulation, it will increase market demand. This in turn can lead to more domestic (local) production or an increase in prices. If domestic production is fixed, then any increase in market demand of goods and services will cause a rise in prices leading to inflation.

In response to the COVID-19 pandemic, the Central Bank of Kenya (CBK) reduced the Central Bank Rate (CBR) to 7.25 percent from 8.25 percent and Cash Reserve Ratio (CRR) to 4.25 percent from 5.25 percent to avert a severe economic and financial crisis. This resulted in more money supply, of Kshs 35.2 billion. This offered banks additional liquidity and funds to lend.

While this offered Muthoni a chance to secure a bank loan, she was not confident that her cash flows would sustain its repayment as her customers kept reducing by the day.

The chart above reveals that the increase in money supply did not cause an increase in inflation. This could be attributed to growth of domestic production at the same rate as money supply, implying that the money is absorbed in production.

It could also be attributed to low circulation of the money in the economy. When the average number of times that money is spent on goods and services is low despite an increase in money supply, the prices are likely to remain low as observed at the peak of the COVID-19 pandemic period.

Was the inflation rate uniform for all the basket items though?

The change in Basket Consumer Price Index was different across various categories.

The main driver for the decline in the inflation rate is consistent decrease in food and non-alcoholic beverages prices from May onwards. This can be linked to the reduction of VAT from 16 percent to 14 percent.

In contrast, the cost of transport increased sharply between June and July. This is attributed to an increase in demand for people travelling following the lifting of the cessation of movement into and out of the Nairobi Metropolitan area, Mombasa county and Mandera county on the 7th of July, 2020.

The cost of alcoholic beverages, tobacco and narcotics remained relatively stable until June when prices started to decline owing to reduced demand as a result of the suspension on the operation of bars.

Muthoni and colleagues dealing in restaurants and food businesses were allowed to remain open only for take away services. However, the demand for restaurants and hotels is seen to dip during the peak period of the COVID-19 pandemic, but things seem to be looking up from the month of August as prices for their services have gone up by close to 3 percent.

Since schools and learning institutions have been closed since March, the prices for education services have barely changed.

The drivers of inflation during the COVID-19 pandemic period resulted from demand-pull inflation, cost-push inflation and money supply. Despite the almost consistent decline in the inflation rates, the change in the Consumer Price Index did not depict a similar trend for all the goods and services.

Additional contribution by Purity Mukami.

This article was first published by Africa Uncensored’s Piga Firimbi

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Kenya Transactions in FinCEN Files Raise Suspicions Around Coffee and Ivory Trade

Twenty-four Kenyan financial institutions were named in the reports as either beneficiaries’ banks or banks through which companies and individuals made suspicious payments from countries that include the United Arab Emirates, Nigeria, the United Kingdom, British Virgin Islands and China.

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At least 53 Kenyan companies and individuals appear in a leak of banking records submitted to the US Department of Treasury as suspicious financial activity, according to an analysis of leaked bank documents by Africa Uncensored.

The documents, submitted by some of the world’s largest banks to the US Department of Treasury’s Financial Crimes Enforcement Network, also known as FinCEN, were obtained by BuzzFeed NewsBuzzFeed News shared the documents with the International Consortium of Investigative Journalists (ICIJ) which coordinated 110 media partners around the world.

The size of the leak, 2,100 suspicious activity reports filed by U.S. banks, or SARs, is unprecedented.  While the documents are not evidence of wrongdoing, they provide a unique, bird’s-eye view of global illicit money flows often obtained through corruption and other crimes.

What is a SAR?
Twenty-four Kenyan financial institutions were named in the reports as either beneficiaries’ banks or banks through which companies and individuals made suspicious payments from countries that include the United Arab Emirates, Nigeria, the United Kingdom, British Virgin Islands and China.

“Banks are at the heart of the finance industry. Both legitimate and illegitimate finance moves through financial institutions. Big money is not carried in suitcases but through very respectable banks and other international financial institutions”, says Alvin Musioma, executive director of Tax Justice Network Africa.

Additional reporting by Africa Uncensored also linked shareholders of Commercial Bank of Africa — now named NCBA Group — which is co-owned by Kenya’s first family, to a company that received millions of US dollars in potentially suspicious payments for coffee and DVD players.

The Coffee Case

The New York branch of Standard Chartered, which acted as an intermediary bank, flagged payments sent to a company called SMS Ltd which the bank identified as having addresses in Kenya, Afghanistan, Uzbekistan, Russia and Bulgaria.

In the reports, the bank described SMS Ltd as being “in [the] pharmaceutical and medical products” industry. However, the bank noted, the companies sending the payments were in completely different lines of businesses, including commodities trading, vegetable oil production, and coffee exports.

Of the $14 million that SMS Ltd received between 2005 and 2013, $3.3 million was paid by Kenyan entities. More than $2 million of that was from two coffee Kenyan dealers, East African Gourmet Coffees Ltd and Servicoff Ltd. In fact, the companies are connected to each other and share company officers with companies linked to the Kenyatta family.

According to company registration documents, East African Gourmet Coffees’ directors include an obscure company with no online presence, New Start Nominee Limited, and two individuals, Kibet Torut and Peter Kimathi Kinyua, who also owns Servicoff Ltd.

One of the shareholders of Servicoff Ltd is  Ropat Nominees Ltd, the second-largest shareholder of NCBA Group, co-owned by President Kenyatta’s family via their company Enke Investments Limited.

The two Ropat Nominees’ directors co-own other companies, including one with John Stuart Armitage, who appears in numerous companies owned by Kenya’s first family. The company, Southbrook Holdings, was recently at the centre of a contentious land sale deal involving the president’s mother.

Contacted by journalists, Peter Kimathi Kinyua said that Servicoff Ltd’s payments to SMS Ltd (registered in Kenya as Sustainable Management Services Limited) have been for the purchase of coffee. He declined to comment on the involvement of Ropat Nominees Ltd except to confirm that the company is part of the nominee shareholders.

“We normally deal with SMS – Sustainable Management Services, a coffee marketing agent at Nairobi Coffee Exchange,” said Kibet Torut while denying knowledge of SMS Ltd and the transactions quoted from the suspicious activity report, in an email response.

Kinyua was appointed by President Uhuru Kenyatta as board chairman for Kenya Forest Service in 2018.

Both Kinyua and Kibet Torut denied having any business ties to the president.

According to their website, Servicoff Ltd, has been growing, processing roasting and blending coffee since 1969. The company shares an email domain name with East African Gourmet Coffees Ltd, the other coffee dealer named in the bank’s report.

Import records confirm that Servicoff has been shipping Washed Kenya Arabica AA coffee since 2007, mainly to the U.S.

The bank report also noted that SMS Ltd had received $1.3 million from Louis Dreyfus Commodities Kenya, listed as a commodity broker in the SAR, the local branch of a global trade firm headquartered in Switzerland that deals in the coffee business too. Africa Uncensored has identified that one of the directors behind the Nairobi branch of Louis Dreyfus is Alexander Mareka Dietz, who is also a director in a company with Udi Mareka Gecaga, a one-time brother-in-law to President Kenyatta.

Reporters were unable to reach Dietz, and automated replies to emails sent to the company address indicate that only approved senders are able to email the company.

Company records obtained by Africa Uncensored reveal that Sustainable Management Services (SMS) Limited is wholly owned by East Africa MM Co. LLC, which is registered in the US state of Delaware, a recognised haven for shell companies due to its reputation for corporate secrecy and tax breaks.

On a US coffee seller’s website, SMS Ltd markets Kenya AA coffee that is handpicked by many small-holding farmers in central Kenya.

According to the Kenya Biogas program website, the company is “one of the partners working with coffee farmers through targeted capacity building on climate change through projects.”

A snapshot of their website in 2016 reveals that SMS Ltd is a group company of Ecom Agro-Industrial Corporation Limited, which is registered in Switzerland with the Esteve family its ultimate beneficial owner. Ecom’s website lists an office at Tatu City coffee park in Ruiru, Kenya where SMS Ltd is located, according to its Facebook page. [3] The Esteve family also runs ECOM Coffee, a leading global coffee miller and coffee trader.

Screenshot of ECOM’s website

Screenshot of ECOM’s website

Screenshot of Sustainable Management Services Ltd’s Facebook page

Screenshot of Sustainable Management Services Ltd’s Facebook page

However, according to the FinCEN files, of the 201 transactions SMS Ltd received totalling over $14 million, more than half came from a Dubai-based vegetable oils production company for the purchase of television and DVD player.

When asked by journalists to comment on why a Kenyan company with a Delaware-registered shareholder markets coffee from Kenyan farmers to Kenyan companies exporting to the US, Musioma, the Tax Justice Network Africa executive director, had this to say:

“The fact that we are talking of companies being registered in tax havens and coming in, speaks of the lax laws we have when it comes to beneficial ownership. You might find that there is a conflict of interest here emanating from the directors of these companies being the ones that are involved in those transactions”.

Reporters were unable to reach SMS Ltd. Emails to the parent company in Switzerland went unanswered.

Victoria Commercial Bank and Middle East Bank (MEB) Kenya Ltd did not respond to questions concerning these transactions, some of which were processed by the banks.

Standard Chartered Bank, whose New York branch filed the suspicious activity report, did not respond in time for publication.

“No More Bullshit”

In another set of transactions in a separate suspicious activity report reviewed by Africa Uncensored, a would-be fashionista named Joyce Oweya Anyumba — a 33-year-old with addresses in Buruburu, Nairobi, and Mombasa — held an account with the Barclays Bank of Kenya from 2015.

Her industry included interior design, curio and African wear, according to Barclays’ report.

However, between July 2015 and October 2016, the account sent and received about 63 wire transfers totalling to $197,094.51. Anyumba received funds from banks in Qatar, the US, Australia, China, Germany and Sweden; she also wired a total of $1234.45 in small payments to individuals in the US, Australia, Canada, Sweden, China and Singapore that the bank could not verify.

The transactions were flagged by the bank because of unidentified sources of funds, unclear economic purposes of the transactions, and potentially being third-party payments.

The justifications for the payments included descriptions such as “bill settlement”, “construction of house” and “consultation fees”, according to the bank’s report.

Other payment details included “government first payment”, “gift finalization of matters discussed”, and “supplier invoice payment to be forwarded”.

One sender from Australia made 13 transfers worth almost $12,000 to Anyumba within a year. The payment details included the mysterious notes: “supplier invoice the money better come back” and “supplier invoice make good on your promise no ivor no more bullshit.” The bank noted in its report: “ivor probably meaning ivory.”

Anyumba denied knowledge of these transactions in an email.

“Am sorry sir, I don’t know what you’re talking about,” said Anyumba when we asked her to confirm the above transactions. She did not reply to our follow up emails on her age, address and whether she is in the business of selling clothes and interior design materials.

There is no legal trade in ivory in Kenya, according to Dr Richard Thomas, the head of communications for TRAFFIC, a UK-based wildlife trade monitoring organisation. “It doesn’t come as any surprise to hear you say there’s essentially no record of [the parties]”, Thomas told reporters.

“Wildlife is like any other commodity that’s traded: there’s buyers and sellers and money changes hands. International commercial ivory trade is banned under CITES, but the trafficking of it takes place, run by largely Asia-based organised criminal syndicates. One effective strategy to targeting such networks is through following the money”, said Thomas.

Other senders of money to Anyumba include an American man with a history of shoplifting and bankruptcy, according to the bank’s suspicious activity report.

The account was expected to have an annual turnover of about 16 million Kenya shillings ($160,000), according to Barclays, but the customer received significant transactions whose real economic purposes could not be identified.

“Barclays Kenya has filed a SAR on Anyumba with their local regulator and is in the process of exiting the relationship,” the report noted.

The Kenya branch of Barclays Bank — now known as ABSA Bank Kenya PLC — had not answered our questions regarding the specifics of the transactions by the time of publication.

Musioma listed some general concerns of suspicious trade through Kenya because the country serves as a hub for drug smuggling and illicit trade in all kinds of goods, including ivory and smuggled minerals.

“All these monies are not carried in suitcases or wheelbarrows. The banking sector is at the centre of it. And I don’t think that both the Central Bank and regulators are doing enough to stretch banks in terms of punitive measures,”  said Musioma.

Many of the transactions flagged as suspicious by banks in the FinCEN Files involve recipients and originators from Kenya and other high-risk jurisdictions, including Cyprus, Mauritius, Moldova, Latvia, Afghanistan, Russia and Turkey.

Musioma likened banks to providers of “getaway cars” in crime and corruption in the country — the so-called intermediaries in terms of them providing the oil to enable corruption. “So, the fight against corruption, illicit financial flows and money laundering and all these other crimes can never be won without bringing in the central role banks play”.

Much more could be done to address the role of Kenyan banks in money laundering and other financial crimes, according to Musioma. For example, increasing the punishment for banks who break regulations designed to prevent illicit flows, improve due diligence in the banks’ compliance procedures, and address the issue of the revolving door.“ We have seen people moving in from the banking sector to become regulators and that will create a conflict of interest in the banking industry,” he said.

With Kenya working on being a regional financial centre, through the Nairobi International Finance Centre (NIFC) the regulation and enforcement of the financial sector must be tightened, the tax expert concluded.

Additional reporting by Juliet Atellah, data journalist at The Elephant.

John-Allan Namu, Martha Mendoza of AP and Kira Zalan of OCCRP contributed to this article.

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COVID-19: Why It Might Get Difficult to Access Bank Loans

Local banks are seeing a growing percentage of their borrowers falling behind or ceasing making payments on their loans. This is making it increasingly difficult for these lenders to issue new loans at a time when struggling businesses need all the help they can get.

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COVID-19: Why It Might Get Difficult to Access Bank Loans
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Small businesses account for the vast majority of employment and job growth in the Kenyan economy. But these firms have been disproportionately impacted by the COVID-19 pandemic and are now facing a credit crunch.

Local banks are seeing a growing percentage of loans fall into the “non-performing” category – meaning that borrowers have fallen behind or ceased making payments.

This is making it increasingly difficult for these lenders to issue new loans at a time when struggling businesses need all the help they can get.

According to the KNBS Economic Survey, the informal sector provided approximately 83% of total employment in the country and created 91% of the new jobs last year.

The Capital Markets Authority (CMA) estimates that 86% of the total demand for the Small and Medium Enterprises’ (SMEs) funds is obtained from bank financing.

As such, most banks in Kenya have tailored loan products targeting these SMEs.

The demand highlighted above led to the launch of an unsecured loan, Stawi, by the Central Bank of Kenya (CBK) in collaboration with five other banks, targeting SMEs. However COVID-19 pandemic has posed challenges to these efforts.

The measures put in place to contain the spread of the pandemic such as restricted movement and curfews have impaired the operations of SMEs. This has, in turn, negatively impacted revenue streams for many. This poses a challenge to banks who have heavily  lent to these businesses. When the affected SMEs cannot repay their loans, it   impacts the bank’s loan portfolio whose quality is dictated by the creditworthiness of the borrowers.

This article focuses on examining the loan quality of local banks during this pandemic period by analyzing their non-performing loans. The loan portfolio quality is an extremely important component of a bank’s profile because loans are considered an asset out of which a bank produces the bulk of its profits.

A bank that is able to maintain satisfactory quality will make sufficient profits to generate capital for expansion. However, not all of a bank’s customers will pay back what they borrowed. Some will make repayments for a period of time and then default on the full payment of interest and principal.  In a nutshell, Non-Performing Loans (NPL) represent loans in which the interest or principal is more than 90 days overdue.

We analyse the banks’ loan portfolio quality between the first quarter of 2019 and the second quarter of 2020 for three publicly listed banks that are offering the Stawi loan product, namely: KCB, Co-operative Bank (Co-op) and Diamond Trust Bank (DTB).

Non-Performing Loans (NPL) Ratio

The loan portfolio quality of banks is measured by their NPL ratio -the amount of non-performing loans as a proportion of the total loans issued to customers;  popularly known as the banks’ loan book.

The ratio reveals the extent to which a bank has lent money to borrowers who are not paying it back.

COVID-19: Why It Might Get Difficult to Access Bank Loans
Both KCB and Co-operative Bank experienced an increased NPL ratio between the first and second quarters of 2020. This indicates a deteriorating loan portfolio quality within the period that SMEs’ revenue generation streams have been strained due to the measures put in place to contain the COVID 19 pandemic.

Indeed, KCB moved from an NPL ratio of 7 % to an NPL ratio of 10% during the pandemic; meaning they were losing 3 more shillings for every 100 shillings they issued as loans to defaulting borrowers.

COVID-19: Why It Might Get Difficult to Access Bank LoansA look at the rate of growth of the loan portfolio in the chart above reveals that the three banks experienced a sharp dip in the amount in loans they advanced to their respective customers. This shows that banks shied away from issuing more loans to their customers within the period the pandemic peaked.

“Borrowers rushed to seek moratoriums on their loan repayment. For banks, this is a loss of interest income, while it’s crucial so as to avoid these loans [from] falling into the NPL category which would reduce profits through provisions,” CPA Alex Muikamba, a financial expert affirms.

Interest Income versus Non-Performing Loans

Since margins on bank loans are usually low, the complete loss of a single non-performing loan can wipe out the profits generated from dozens of performing loans. We now compare the interest income from the loans with the amount of Non-Performing loans.

COVID-19: Why It Might Get Difficult to Access Bank Loans

COVID-19: Why It Might Get Difficult to Access Bank Loans

COVID-19: Why It Might Get Difficult to Access Bank Loans
It is observed that the total non-performing loans exceeded the interest income from loans and advances in most quarters for the three banks.

When loans are classified as non-performing, banks are compelled to stop accruing interest on those assets. This implies that their net interest income will fall as their funding costs remain unchanged.

Loan-Loss Provisions

Banks usually set aside an allowance for uncollected loans from customers to cover for any losses that may be occasioned by the Non-Performing loans.  This allowance is referred to as the loan-loss provisioning.

During the peak period of the pandemic in the second quarter of 2020, banks are seen to have increased their loan-loss provisioning in response to the declining loan portfolio so as to remedy the situation before it gets out of hand. The KCB increased their loan loss provisioning to a greater extent as compared to the other two banks that were analyzed. This is because of the higher increase in its non-performing loans as observed in the sharp rise of its NPL ratio.

COVID-19: Why It Might Get Difficult to Access Bank LoansThese increased provisioning costs will be charged against operating income and will fall through to the bottom line, reducing net income attributable to shareholders.

As uncertainty surrounds the time it will take for the economy to recover from the effects of the pandemic, so is the recovery of affected SMEs borrowers.

What happens to the Non-Performing Loans though?

Muikamba suggests that to mitigate NPLs, banks will have to restructure the loans to make it easier for borrowers to repay by extending the loan terms and hence reducing the instalment.

In a circular on the measures to mitigate the adverse impact of COVID-19 on loans and advances, the CBK recommended loan restructuring where a bank may negotiate with the borrower to work out revised terms to enable the borrower to make payment under more relaxed terms. This relief, however, was granted only to those borrowers whose loans were performing as at 2nd March 2020. For borrowers who were already struggling to make their repayments, they would have to contend with foreclosure which involves the recovery of any collateral used to secure the loan.

For unsecured loans, banks would be obliged to write-off the loans by removing them from their balance sheet.

In the extreme event where write-offs exceed existing loan-loss reserves and available profits from other sources, shareholders’ equity will have to be written down.

This would in turn affect capital levels which could necessitate new funding to ensure the banks meet the regulatory minimum capital requirements. The banks could also strengthen their capital levels by reducing loan growth so as to shrink its loan portfolio. In such a scenario, it would mean that you would have a difficult time accessing a bank loan.


Additional contribution by Purity Mukami. This article was first published by Africa Uncensored’s Piga Firimbi.

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