Market Commentary
- The All Share Index shed 1.1% to close the day at 130.79. This was mainly attributed to foreign sell side activity on Safaricom (-1.1% to KES 26.70). The counter was the biggest mover of the day (31.7 million shares traded) accounting for 83.5% of the day’s traded value.
- The NSE 20 Index also declined by 0.2% to 1,906.25 as majority of the counters witnessed price declines. Activity in the banking sector accounted for 10.1% of the day’s traded value with notable sell side activity on Equity (-2.5% to KES 33.00), NCBA (-1.5% to KES 25.70) and Co-op Bank (-1.3% to KES 11.65). Foreign investors emerged net sellers with 96.9% sales against 42.6% purchases.
News Highlights:
Central Bank to Regulate Digital Mobile Lending
The Central Bank of Kenya (CBK) will regulate the monthly interest rates charged by digital mobile lenders and the borrowers’ nonperforming loans if the Central Bank of Kenya (Amendment) Bill 2020 becomes law. The bill gives CBK the powers to approve increases in digital lenders interest rates and other loan charges. CBK will also be able to put a ceiling on non-performing loans at not more than twice the defaulted credit among other regulations.
The main objective of the bill is stated as regulating the conduct of providers of digital financial product and services.
Moreover, the CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.
Digital mobile lenders will be expected to follow the same rules as commercial banks. For instance, they will have to seek the CBK’s approval for new products and pricings.
In April 2020, the CBK stated that unregulated mobile lenders were not allowed to forward the names of defaulters to the Credit Reference Bureaus (CRBs) owing to the negative economic impact of the Covid19 pandemic.
Commentary
Although it’s not clear whether the current mobile loan charges from some banks are fair (CBK may issue a directive once the bill becomes law), this does pose a risk to banks’ (and Safaricom’s MPESA’s revenue due to the strategic partnerships with banks) income (particularly on the non-interest income component due to the facilitation fees).
Recommendations:
Long Term Buy- KCB, Equity, Absa, Stanbic, NCBA
Hold- Safaricom
Sell- Stanchart, Bamburi, HF