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 The previous Esop plan in 2019, which was withdrawn during the AGM, would have allocated 205.7 million shares worth Sh8.4 billion to bank staff.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.

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.

Standard Chartered Bank Kenya (StanChart) has reported a significant growth in net profit for the first quarter ended March, driven by higher interest income and revenue from transactions and foreign exchange trades. The bank’s net profit increased by 45.6 percent to reach Sh4 billion, compared to Sh2.7 billion in the previous year, while operating income rose by 45.2 percent to Sh10.76 billion.

Non-interest income experienced substantial growth, outpacing interest income, with a 55.5 percent increase to Sh3.9 billion from Sh2.5 billion in the same period last year.

This growth was primarily propelled by a 114 percent rise in forex trading income, reaching Sh2.19 billion from Sh1.02 billion. Net interest income also increased by 40.1 percent to Sh6.9 billion, attributed to higher earnings from loans and lower interest expenses.

Despite customer deposits growing by 14.2 percent to Sh302.9 billion, the bank managed to reduce its interest expenses by 5.4 percent to Sh701.8 million, indicating a benefit from increased non-interest-bearing accounts. StanChart’s loan book expanded by seven percent to Sh137.1 billion, contributing to a 14 percent growth in total assets to Sh388.6 billion. However, the bank reduced its investment in government securities, such as bonds and Treasury bills, by 6.2 percent to Sh95 billion, aligning with the industry trend of diversifying investment portfolios away from government lending.

The bank’s total operating expenses increased by 47.2 percent to Sh5.1 billion, primarily due to higher loan-loss provisioning, which reached Sh790.9 million. This is in contrast to the previous year when the bank had written back all of its loan impairment costs to the profit and loss accounts. Despite a marginal increase in gross non-performing loans to Sh22.59 billion from Sh22.56 billion, StanChart displayed increased conservatism by significantly boosting provisions.

StanChart’s performance aligns with the overall positive outlook for large banks in Kenya, as they are expected to set new earnings records this year. Equity Group reported a 6.6 percent growth in net profit to Sh12.3 billion, driven by higher interest income, fees, and commissions. Stanbic Bank, the main subsidiary of Stanbic Holdings, achieved an impressive 84.3 percent growth in net income, reaching Sh3.89 billion.