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Banking & Microfinance

Biggest Africa Lender Plans Kenyan Bank Acquisition by 2025



 Standard Bank wants a Kenyan unit among the nation’s top lenders Lender sees options in Ethiopia once banking is liberalized

By Bella Genga
A Bloomberg story

Standard Bank Group Ltd., Africa’s biggest bank by assets, plans to acquire a lender in Kenya by 2025 as part of its growth strategy, according to the company’s East Africa Regional Chief Executive Patrick Mweheire.

The plan is for its Kenyan unit, Stanbic Holdings Plc, to grow through acquisition within two years, Mweheire said in an interview in the capital, Nairobi. Standard Bank wants to use the purchase to become one of the largest operations in a market dominated by local brands such as Equity Group Holdings Plc and KCB Group Plc.

“We have aspirations to be a top three bank in Kenya,” Mweheire said. “Number six is not acceptable. Within 12 months we would have identified and would have started having negotiations with someone,” he said.

Johannesburg-based Standard Bank has operations in five eastern Africa markets, including Kenya, Uganda, Tanzania as well as the Democratic
Republic of Congo where it plans to add retail banking to its corporate business. It has a representative office in Ethiopia.

The firm will also seek a full license in Ethiopia once Africa’s second-most populous nation opens up its banking industry to foreign investors, Mweheire said.

It “would have to buy something because organic growth doesn’t make sense” in Ethiopia, he said. “The problem with going organic is that you
bleed for the first five to 10 years.”

Ethiopia May Allow Overseas Lenders to Own 30% of Local Banks

There are 25 commercial lenders serving Ethiopia’s 117 million people, according to World Bank data. The state-owned Commercial Bank of
Ethiopia holds assets worth 948.1 billion birrs ($17.6 billion) and has about 15.9 million customers, according to information on its website.

“I wouldn’t be surprised if they ask for $100 million to $200 million of capital to get anything done there,” Mweheire said, without giving
further details.

Stanbic Holdings, which is 75% owned by Standard Bank, reported a 26% jump in full-year net income in 2022 from the previous period, with
investment in government securities climbing 41% to 83.6 billion shillings (647 million) as it took advantage of rising interest rates.

“We expect the bank’s aggressive lending strategy to continue,” Nairobi-based Sterling Capital said in an emailed note.

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Banking & Microfinance

Equity Bank Plots New Ksh 7.6 Bn Staff Share Reward Scheme



Equity Bank Group Chief Executive Officer Dr. James Mwangi

Equity Group has announced the revival of its employee share ownership plan (Esop) in an effort to retain and attract talented staff. The bank plans to distribute 198.6 million shares, valued at Sh7.6 billion, to employees over the next 10 years. This comes after a previous attempt four years ago to implement a similar plan, which was abandoned just before the allotment of 205.7 million shares in 2019.

Equity Group’s board has proposed the creation of additional shares to support the Esop and will seek shareholder approval during the upcoming annual general meeting on June 28.

The newly created shares will amount to five percent of the company’s share capital, raising the maximum share capital from Sh1.886 billion to Sh1.986 billion. The directors will have the flexibility to issue the additional shares in tranches and based on terms and conditions they deem appropriate.

Notably, the Group’s CEO, James Mwangi, is among the employees expected to benefit from the share allotment. The previous Esop plan in 2019, which was withdrawn during the AGM, would have allocated 205.7 million shares worth Sh8.4 billion to bank staff.

This new Esop will be the second of its kind for Equity Group, as the bank initially established a stock-based compensation scheme before its listing on the Nairobi Securities Exchange in 2006. Esops are employee benefit plans that provide ownership interest in the company through shares. They are designed to enhance staff productivity, reward employees, and attract and retain talent. The approval of the Capital Markets Authority (CMA) is required for the implementation of Esops. According to the CMA, as of March 2021, it had approved 14 Esops.

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Banking & Microfinance

StanChart wins Court Case Against Taxman over Ksh 350 million Tax Row



File image of a Kenya Revenue Authority (KRA) iTAX office

The High Court this June delivered a significant blow to the Kenya Revenue Authority (KRA) by ruling that it cannot impose levies on the fees collected by banks from card transactions.

Justice David Manjanja concurred with Standard Chartered Bank’s argument that the KRA cannot impose both the 16% value-added tax (VAT) and excise duty on the fees paid by merchants for the use of point-of-sale (POS) machines.

This ruling represents a second defeat for the KRA, as the Tax Appeals Tribunal (TAT) had previously determined that the role of banks is solely to verify cardholder information during money transfers.

The core issue at stake was whether interchange fees are exempt from VAT and whether the commissioner’s application of the shortfall penalty was justified. Standard Chartered contended that interchange fees are ancillary to money transfers and, therefore, should be exempt from VAT. According to the bank, the fees charged to merchants are strictly for the purchase of goods or services and cannot be considered as money transfers.

On the other hand, the KRA argued that card users of VISA International Services Association, MasterCard, Inc., and American Express Ltd pay a royalty to the global service network system for facilitating the transaction, making it subject to VAT at the standard rate.

Justice Majanja determined that while the KRA relied on a Court of Appeal decision regarding ABSA’s payments to Visa companies for trademarks and logos, the appellate court did not specifically address royalty payments. As a result, Justice Majanja rejected the commissioner’s argument that interchange fees constitute royalty payments and are subject to VAT, noting that the Court of Appeal’s decision indicates otherwise.

In its defense before the TAT, Standard Chartered also argued that excise duty should be paid by the receiving bank that owns the point-of-sale (POS) machine, with the remaining fees distributed among issuing banks and payment service providers like VISA. The tribunal concluded that imposing excise duty on fees received by Standard Chartered would amount to double taxation.

The KRA conducted a review of the financial statements of lenders from January 2014 to September 2018. As a result, it claimed that Standard Chartered owed additional excise duty on earned fees and commissions, totaling Sh505.7 million, including interest and penalties.

As of March 2021, there were 48,355 POS machines in the country, facilitating a total of 3,511,453 transactions.

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Banking & Microfinance

Kenya’s Equity Group Q1 2023 Pretax Profit up 10%



Equity Group Holdings

Equity Group Holdings, a leading financial institution in Kenya with operations in several other African countries, announced a 10% increase in pretax profit for the first quarter of 2023. The pre-tax profit reached 16.9 billion Kenyan shillings ($124 million), driven by the growth of its loan book.

Equity reported a significant rise in net loans, which increased by over 20% to 756.3 billion shillings compared to 623.6 billion shillings in the same period the previous year. This expansion in the loan portfolio contributed to the bank’s positive financial performance.

Additionally, Equity Group obtained regulatory approval to establish a general insurance business in Kenya, expanding its offerings beyond life assurance.

The bank’s total assets also experienced substantial growth, surging by 21% to 1.54 trillion shillings from 1.3 trillion shillings in the first quarter of 2022, indicating the bank’s strong overall performance and increasing market presence.

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