Central Bank buys dollars to curb shilling volatility
Kenya's shilling experienced a notable shift in its trajectory during Thursday's afternoon trading session, surrendering some of its recent gains. Traders reported that the central bank intervened by purchasing dollars to mitigate volatility as the currency surged to its highest level since June 2023.
The Central Bank of Kenya clarified its stance, asserting that it intervenes solely to address excessive fluctuations when the shilling exhibits rapid movements in either direction.
As of 1250 GMT, commercial banks quoted the shilling at 145.00/146.00 against the US dollar, marking an increase of over 3 percent from Wednesday's closing rate of 150.00/151.00.
Earlier in the day, the shilling soared by almost 8 percent, reaching as high as 139.00 against the US dollar, according to LSEG data.
This surge was fueled by foreign inflows into Kenyan domestic debt and the resolution of a $2 billion Eurobond set to mature in June.
Market sentiment was further shaped by the government's recent issuance of a new $1.5 billion Eurobond maturing in 2031, alongside the successful sale of a Sh70 billion infrastructure bond, which received substantial bids exceeding Sh288 billion, with strong offshore investor participation.
Traders speculated on the central bank's intervention, suggesting that without its involvement, the shilling could have potentially reached levels around 130 against the US dollar, considering anticipated offshore inflows.
BANKING
Moody’s sounds warning on Kenyan banks' defaults
Global ratings agency Moody’s has shifted its outlook on Kenyan banks from stable to negative, expressing concerns over the escalating volumes of non-performing loans despite the sector's solid profitability and liquidity levels.
The local banking landscape witnessed a significant surge in non-performing loans, ballooning by Sh133.6 billion to Sh621.3 billion within the 12 months leading up to December 2023, representing 14.8 percent of the sector’s loan book, compared to 13.3 percent in 2022.
This increase reflects broader economic challenges faced by borrowers, including higher interest rates, inflation, delayed bill payments, and diminished demand for goods and services.
Moody’s analysis underscores a somber outlook for borrowers' creditworthiness and anticipates challenging operating conditions for banks throughout 2024. The array of challenges confronting borrowers includes escalating interest rates, augmented taxes, reduced government spending, inflationary pressures, foreign currency shortages, and governmental delays in settling outstanding bills. Consequently, the agency predicts a further uptick in problem loans as these factors continue to weigh heavily on borrowers.
Factors such as the soaring costs of goods and services, the introduction of new statutory deductions such as the housing levy, and the concurrent increase in interest rates aligned with a higher Central Bank Rate (CBR) – now standing at 13 percent, the highest in 12 years – have collectively eroded borrowers’ capacity to service loans.
Despite the grim forecast, Moody's clarifies that its outlook adjustment does not represent a credit rating action but rather offers a perspective on the credit fundamentals within the banking sector over the subsequent 12 to 18 months
COMPETITION LAW
Airtel, ATC under Comesa watchdog probe over towers deal
The Common Market for Eastern and Southern Africa (Comesa) Competition Commission (CCC) has initiated investigations into potential anti-competitive behavior by telecommunications giants American Tower Corporation (ATC) and Airtel Africa. Following a complaint, CCC CEO Willard Mwemba stated that the Commission is examining whether a recent agreement between the two firms violates Comesa's competition regulations, specifically Article 16. This article prohibits agreements that could impede trade between member states or distort competition within the Common Market.
The controversy revolves around a strategic partnership announced in October 2022, wherein ATC agreed to develop new telecommunication sites for Airtel based on environmentally friendly specifications to reduce Airtel’s carbon footprint.
Under the deal, Airtel would lease a certain number of ATC sites annually and receive financial rebates in return. However, concerns have been raised that this arrangement may hinder competition, as it could potentially give Airtel an unfair advantage in the market, thus warranting scrutiny from the Comesa watchdog.
ATC, a US-based firm, operates extensively in Kenya through its subsidiary ATC Kenya, which owns thousands of telecommunications towers. The alleged anti-competitive nature of the agreement between ATC and Airtel has sparked debates about fair business practices within the telecommunications sector.
HEALTH
State plans new hospital categories for SHIF
The Ministry of Health in Kenya has announced plans to re-categorize all hospitals seeking empanelment by the Social Health Insurance Fund (SHIF) as part of a sweeping effort to crack down on fraudulent activities that have cost taxpayers millions of shillings. Health Cabinet Secretary Susan Nakhumicha revealed that the move comes in response to fictitious claims against the National Health Insurance Fund (NHIF), which irregularities have plagued. Nakhumicha emphasized that the Kenya Medical Practitioners and Dentist Council (KMPDC) will be exclusively responsible for inspecting and categorizing hospitals across all levels before they are contracted by SHIF.
Addressing the National Assembly’s Health Committee, Nakhumicha underscored concerns about hospitals being contracted at levels that do not align with their actual capabilities, leading to inappropriate reimbursement rates from the fund. She pointed out instances where hospitals classified as Level Four were operating at Level Two standards. Under the new framework introduced by the Social Health Authority (SHA) Act, the KMPDC will assume a pivotal role in scrutinizing, categorizing, and licensing hospitals before their inclusion in the SHIF network for claims payment. This overhaul aims to curb fraudulent practices and ensure that healthcare facilities are appropriately accredited and compensated for services rendered.
The initiative is set to take effect alongside implementing a 2.75 percent SHIF deduction starting 1st March 2024.
ECONOMY
Treasury targets Sh323.5 billion more in taxes
The Kenyan government is gearing up to bolster its revenue collection efforts, aiming to gather an additional Sh323.5 billion in taxes. This ambitious move is part of a broader budget spending plan totaling Sh4.55 trillion, with a significant portion allocated to salaries and debt repayments.
The strategy outlined in the 2024 Budget Policy Statement (BPS) focuses on targeting hard-to-tax sectors such as the informal economy, digital activities, and agriculture, aiming to enhance tax compliance and revenue generation.
For the fiscal year 2024/25 spanning from July to June, the government aims to amass Sh2.95 trillion in taxes, building upon the revenue-raising measures implemented in the Finance Act 2023.
These measures notably include the doubling of value-added tax (VAT) on fuel. Despite these efforts, the Kenya Revenue Authority (KRA) faces a considerable challenge, having already fallen short of its targets for the current fiscal year ending in June.
According to a Treasury document, the KRA missed its mark by Sh186.2 billion for the first six months, with corporate and employee income taxes contributing significantly to this shortfall.
WHAT YOU MUST HAVE MISSED
KenGen paid Kshs 545 Million private shareholders’ dividend
Electricity producer KenGen has paid its private shareholders a first and final dividend of Sh0.3 per share totaling Sh545.21 million for the financial year ended June 2023.
The 190,784 shareholders constitute 30 percent of the Nairobi Securities Exchange (NSE) listed company’s shareholder base. The remaining 70 percent stake is held by the National Treasury.
The dividend payment follows the approval granted by shareholders during the company’s 71st Annual General Meeting (AGM) held in November last year.
Tanzania lifts Tea imports ban
Tanzania has reversed its decision to suspend imports of tea, presenting a window for Kenyan traders to resume exports to the neighboring country.In a memo on Wednesday, the Tea Board of Tanzania, the regulator of the country’s tea sector, said it would resume issuing import licences.
“This is to inform you that the issuance of import permits will resume with effect from February 19, 2024,” said the board memo to tea processors, blenders, packers, and traders.
Electric vehicles infrastructure firm Spiro signed a deal with Petrocity that will see it set up battery swapping stations at the oil marketer’s outlets.
Swapping stations allow motorists with EVs to exchange depleted batteries for fully charged ones, thus ensuring continuous and efficient travel without long recharging times at stations. Spiro, which began operations in 2019, currently operates more than 600 stations for swapping EV batteries in Kenya, Benin, Togo, and Rwanda.
Through the deal with Petrocity, the firm seeks to leverage the oil company’s extensive network of fuel outlets across the country to put up the swap stations.