Commercial Banks Call for Pause in Interest Rate Hikes by Central Bank
29 May 2023
Commercial Banks Call for Pause in Interest Rate Hikes by Central Bank
Commercial banks called for a pause in interest rate raises by the Central Bank of Kenya (CBK) when it holds its monetary policy meeting today (29 May 2023), citing a diminishing macroeconomic recovery.
In a research note released on Tuesday, the Kenya Bankers Association (KBA), representing the banking sector, argued for the preservation of the current monetary policy stance, advocating for the Central Bank Rate (CBR) to remain unchanged at 9.5%.
"Given the developments mentioned above and the delicate balance between inflationary pressures and economic growth, we believe that maintaining the status quo on the CBR would be appropriate," - KBA.
According to the association, recent interest rate hikes implemented by the Central Bank have led to a deceleration in private sector credit growth, exacerbating the industry's deteriorating asset quality.
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ECONOMY
1. Kenya Receives Over 300 Proposals to Tackle Eurobond Maturity Amid Credit Risk Concerns
In anticipation of the maturity of Kenya's KES 275 billion Eurobond next year, Kenya received an overwhelming response of more than 300 proposals offering various liability management solutions. This influx of proposals has provided the government with confidence in its ability to settle the $2.0 billion Eurobond, which amounts to KES 275.8 billion at the current exchange rate, due in June 2024.
The substantial number of proposals arrived shortly after Moody's, a renowned credit rating agency, downgraded Kenya's credit ratings last week, classifying the nation as a 'very high credit risk.' In response, the National Treasury has moved to reassure both Kenyan citizens and global investors that there is no cause for concern regarding the government's capability to repay this maturing debt.
According to the Draft Budget Estimates for the financial year 2023/24, the Treasury has allocated KES 241.75 billion towards the maturing bond. This staggering amount accounts for 51% of the upcoming fiscal year's external debt redemptions. The Treasury plans to undertake what it calls "effective liability management" beginning in July 2023.
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2. Government Loans to State Corporations Surpass KES 1 Trillion Mark as Repayment Delays Lead to Write-Offs
The value of government loans extended to State corporations reached a significant milestone, surpassing the KES 1 trillion mark.
According to data from the Treasury, the total amount lent out to firms such as Kenya Railways Corporation and Kenya Electricity Generating Company (KenGen) stood at Sh1.089 trillion as of the end of June last year. This marked an increase of Sh121.7 billion compared to Sh967.3 billion recorded a year earlier.
Out of the Sh1.089 trillion, Sh52.6 billion has either been written off or repaid, leaving an outstanding amount of Sh920.69 billion.
According to data from the Treasury, 31 out of 59 State corporations, did not make any repayments during the financial year ending in June 2022. This highlights the challenges faced by these entities in meeting their loan repayment obligations.
Kenya Power owes KES 56.15 billion.
Kenya Airways owes KES 31.27 billion.
Athi Water Services Board owes KES 47.18 billion.
Coast Water Services Board owes KES 15.84 billion.
Rural Electrification Authority owes KES 13.4 billion.
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COMPANIES
KCB Group Bolsters Ugandan Unit with KES 1.2 Billion Equity Investment
KCB Group revealed an additional equity investment of KES 1.2 billion in its Ugandan unit during the financial year ending December 2022. This announcement, featured in the latest KCB annual report, signifies the bank's commitment to strengthening its presence in the Ugandan market.
The injection of equity capital has propelled the total investment value in KCB Bank Uganda from KES 3.14 billion in the previous year to an impressive KES 4.34 billion.
KCB's subsidiaries’ performance
KCB Bank Uganda's net profit grew to KES 1.04 billion last year.
Rwanda was the most profitable subsidiary, with a net profit of KES 2.03 billion.
Tanzania’s net profit was KES 1.09 billion.
The South Sudan and Burundi operations returned KES 938 million and KES 600 million net profit respectively.
DRC posted KES 291 million net loss for the month of December when the acquisition of TMB happened.
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INSURANCE
Britam Received Approval from Retirement Benefits Authority to Manage Second-Tier NSSF Contributions
Britam was granted the green light by the Retirement Benefits Authority (RBA) to oversee second-tier National Social Security Fund (NSSF) contributions for employers who choose to opt out of the State pension fund.
This significant development marks Britam as the fourth private pension provider to secure regulatory approval for managing tier II NSSF contributions, following in the footsteps of Octagon Africa, Enwealth Financial Services, and CPF Financial Services.
Under the approved arrangement, Britam will administer the contributions through three distinct schemes:
Britam Umbrella Provident Fund
Britam Umbrella Pension Fund
Britam Individual Pension Scheme.
"Consequently, and in line with our mission to provide you with financial security every step of the way, we are here to assist all eligible employers with the Tier II contracting out process." - Britam
PUBLIC PROCUREMENT
1. PPARB Invalidates Sh212.3 Million Tender Awarded by Kenya Meat Commission
The Public Procurement Administrative Review Board (PPARB) has invalidated a massive KES 212.3 million tender granted by the Kenya Meat Commission (KMC). The tender, which involved the supply, installation, testing, and commissioning of a canning line, has now been nullified due to irregularities in the procurement process.
The PPARB decision stemmed from the failure of the KMC to provide adequate information to Apex Projects Limited, the applicants, regarding the disqualification of their tender during the preliminary evaluation stage. The board's ruling highlighted the lack of transparency demonstrated by the meat processor and its accounting officer in issuing the notification of intention to award the tender dated April 6, 2023.
2. PPRA Investigates Kenya Power's Sh22 Billion Meter Tender Allegations
The Public Procurement Regulatory Authority (PPRA) took action by requesting an explanation from Kenya Power regarding a controversial KES 22 billion tender for meter supply. The tender, which was exclusively limited to local manufacturers and assemblers raised concerns about fairness and discrimination in the procurement process.
In a letter addressed to Dr Joseph Siror, the Managing Director of Kenya Power, PPRA is demanding that the power utility company clarify whether the tender adhered to the fundamental principles of fairness and non-discrimination among bidders. The regulatory authority seeks a comprehensive demonstration from Kenya Power to evaluate the compliance of the tender with these principles.
The tender, awarded to four local assemblers and manufacturers, came under scrutiny following a complaint filed by Mr Benedict Kabugi Ndung’u. According to Mr Kabugi, the distributor unlawfully and irregularly restricted the tender to local assemblers, as the eligibility criteria mentioned in the tender documents indicated a preference for local manufacturers only.
PPRA's Director-General, Patrick Wanjuki, expressed the authority's concerns in a letter dated May 19, stating,
"In view of the foregoing and pursuant to sections 99h), 34 and 35 of the Act, submit to us your response to the allegations raised including an explanation demonstrating your procuring entity’s compliance to the principles of fairness and non-discrimination of bidders participating in the subject procurement and current status of the subject procurement proceeding."
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ENERGY
1. Joint Partners Withdraw from Kenyan Oil Project, Leaving Tullow Oil in a Precarious Position
Two key joint partners have decided to withdraw from the project, intensifying the pressure on the main operator, Tullow Oil. The British oil explorer, grappling with financial constraints, has been unable to kickstart the undertaking.
Africa Oil, one of the partners, made the strategic choice to abandon the Kenya project and redirect its focus towards areas that hold greater potential for petroleum resources. Similarly, Total, the other joint partner, opted to pull out just a few months after expressing interest in exploring alternative methods to monetize its stake.
Formerly holding a 25% stake each, the departure of Africa Oil and Total from blocks 10BB, 13T, and 10BA in the South Lokichar Basin has left Tullow Oil as the sole participant in the venture. This development comes at a time when concerns regarding Tullow's financial viability are mounting.
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2. Kenya Airways Launches Inaugural Flight with Biofuel in Collaboration with Italian Energy Company Eni
Kenya Airways (KQ) initiated its first-ever flight powered by biofuel, developed by Italian energy firm Eni. The national carrier embarked on this maiden journey to evaluate the viability and effectiveness of sustainable aviation fuel. Departing from Jomo Kenyatta International Airport (JKIA) in Nairobi, the Boeing 787-800 (B787-8) Dreamliner embarked on its destination to Amsterdam's Schiphol Airport, propelled by a blend of traditional jet fuel and Eni's biofuel.
The aviation industry's latest endeavor highlights the growing commitment to combat climate change by transitioning to low-emission alternatives. Kenya Airways CEO Allan Kilavuka expressed his optimism about the flight's potential contributions, stating, "The data and insights generated from the pilot flight will be valuable to inform policy decisions, regulatory frameworks, and industry best practices related to Sustainable Aviation Fuel.
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WHAT YOU MIGHT HAVE MISSED
Venture fund startup Africa Climate Ventures (ACV) has raised £1 million (KES171.1 million) for investing in companies focused on environment-friendly projects in the continent.
ACV, a prominent venture builder, has secured a substantial capital infusion from FSD Africa Investments (FSDAi) in the form of a convertible loan. This investment aims to bolster ACV's formalization process and enhance its ability to attract funding from major investment funds.
With a target of creating a portfolio worth $45 million (KES 6.2 billion) by the close of 2024, ACV is aggressively working towards its ambitious goal. This financial boost from FSDAi will play a crucial role in supporting ACV's growth strategy.
Large-scale tea producers in Kericho and Bomet counties lost KES 170 million in the ongoing violence against multinationals
Kenya's tea industry, a key driver of the country's economy, has been hit hard as tea growers face significant losses resulting from the destruction of tea harvesting machines and theft of green leaf produce. The Kenya Tea Growers Association (KTGA), representing both multinational and local private tea companies, has estimated the total loss at a staggering KES 170 million.
While multinational tea firms have defended the use of tea harvesting machines, emphasizing the potential for reduced production costs and improved competitiveness in the global tea market, workers' unions have expressed strong opposition.
Kenya to receive an additional KES 162.5 billion under the 38-month program that it has with the International Monetary Fund (IMF)
Kenya is set to receive an extra KES 162.5 billion under its 38-month program with the International Monetary Fund (IMF).
The injection of funds is poised to bolster Kenya's efforts to replenish its foreign exchange reserves, with the capital amounting to Sh484.9 billion ($3.52 billion) after the country requested two additional credit facilities. Notably, this follows the approval of the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements in April 2021, which originally amounted to Sh322.4 billion ($2.34 billion).
Bamburi Cement Faces Massive Tax Claims of Sh1.2 Billion in Kenya and Uganda
Kenya and Uganda demand a staggering sum of Sh1.2 billion in tax claims from Bamburi Cement. This tax claim overshadows the company's modest net profit of KES 181 million for the year concluding in December.
According to Bamburi, Kenya's Treasury Cabinet Secretary issued a letter on February 23, 2022, rejecting the company's plea for a waiver on penalties and interest amounting to KES 288 million. These penalties are a result of a tax assessment spanning from 2007 to 2011.