Barclays bank financial results

Most banks in Kenya, both local and international announce their financial results for the previous year between February and 31^st March.

Barclays bank of Kenya was the first bank to announce the financial results for 2011. The bank had a steep drop in net profit. The reported net profit was kes 8 billion after tax down from kes 10.5 billion in 2010. The 23.8% fall in net profit fell short of market expectations.

The bank has defied these results and will give a higher return or dividends to its shareholders. The final divided to be given out will be kes 1.5 per share which includes 0.06 per share as special dividend. This payout is 10% higher than last year’s payout of kes 1.35 per share

Barclays Bank results explained in detail

The reason given by Barclays Bank for this reduced profit is due to marginal total income growth. This kind of growth translates to a kes 1.49 per share performance. This compares adversely to the performance in 2010 of 1.95 per share. Barclays did not expect this result which is way below the forecasted outcome.

In 2010, Barclays Bank had made 3.5 billion from sales of its custody business. In 2011, these sales were not forth coming.

Inflation in Kenya rose from 5% to more than triple and ended the year at more than 15%. Interest rates also more than double between 2010 and 2011. The loan book for Barclays consequently grew to 99 billion. This growth in loan book was not reflected in the interest income which only grew to kes 13.6 billion. This is a modest growth taking into account the large loan book.

Barclays Bank mitigation strategy

• Though the non interest fell by about kes 300 million to 10 billion, the prudent cost management measures employed by Barclays Bank saw the ratio drop from 54% to 52% the previous year.
• A retrenchment program involving middle level managers helped to save the day by making huge cost savings to the tune of kes 1 billion
• The roll out of ATMs has helped Barclays Bank Kenya in its ongoing cost saving plan. Together with ATMs Barclays Bank Kenya has also rolled out internet and mobile banking.
• Barclays Bank Kenya managed to cut the costs on funds in high inflation market like Kenya was phenomenon.
• Barclays Bank Kenya has been leading to stable corporate and will continue to do so in the coming years to escape the high default rate risk, as inflation continuous to bit and is unpredictable.
• Nonperforming loans also dropped by over 1billion due to aggressive debt recovery strategies.

Barclays Bank  may have set the tune for the results to be released by other banks, and it may be an indication that banks in Kenya will not make supper profits as has been the case in previous years.

Meaning of liability shift

Liability shift is a way for card associations to reduce card fraud. The associations (Visa and MasterCard) insist on card companies issue cards that are chip cards. Chip cards are also referred to as smart cards. The information for the card account is held in the chip with a default for magnetic stripe.

With liability shift, associations like visa and MasterCard have insisted that card manufactures, card issuers and card acquirers get certified for EMV. All card participants must get on board and different regions all have different dates by which they have to have been certified. Banking in Kenya has also been affected by these developments in liability shift.

EMV certification is a very technical and expensive exercise. Most countries in Africa have missed the deadlines or will miss the deadline due to lack of capital resources to have EMV certification.

How liability shift works

Liability shift is a tool that is being used by the associations to ensure that the card industry is EMV certified which will reduce card fraud. The liability for fraud on a card is being shifted from the merchant to the issuer and acquirer. Where an issuer has give cards that are EMV or chip, these cards use Personal identification number (PIN) to verify card transactions.  Where a chip card has to default to magnetic stripe because the merchant POS or ATM is not EMV certified, the card transaction is verified using signature on a paper receipt.

Signature is less secure than PIN because the signature is not verified at the cardholders account level on the card management system. Pin verification means that the PIN keyed on the POS or ATM is verified by the card management system. Where the PIN is wrong, the transaction will not be authorised. Charge backs for EMV cards will be allowed for most reasons where the merchant is not ENV certified.

How liability shift affects you

As a individual cardholder, the liability shift does not affect you. If you have a corporate card, the liability shift migration does not affect you either. As a card issuer, if your cards are not Chip, you will have a problem of having merchants that accept your cards because merchants will not want to accept card transactions from non-EMV cards. As merchants and Acquirers, liability shift is very important because if the POS and ATMs are not EMV certified, charge backs on transactions become the responsibility of the Merchant or acquirer.

Issuers, acquirers and card processors must ensure that they comply with the associations to become EMV compliant within the given time frames. Failure to comply will mean losses as the liability shift for charge backs will act as income leakages leading to failed, bankrupt and closed card companies.

However this doesn’t mean they should simply just put up a quick banking website just to be present online. Banking websites must have appealing web designs with essential elements that capture and retain their users’ attention.

In this article I will discuss three important things web designers in Kenya should consider when developing a banking website.

1. Who Is the Banking Website Targeting as Their Customers?

It is important to understand who the target audience of the banking website is. Who they are, why they will be visiting the website and what they intend to do on the website. A majority of the consumers will visit the banking website with a specific objective.

While some will visit the banking website to find out information on a banking product others will visit to access online banking. Therefore you need to understand that every user will definitely want their area of interest to be given priority.

This can be achieved by grouping information on a banking website targeting a specific group separate from information targeting another group.

As seen in the example above taken from the Commercial Bank of Africa website, they have separated information in 3 sections: Personal Banking, Corporate Banking and Investment Banking to target the 3 types of customers who may visit their website.

2. Visual Appeal and Brand Consistency Of The Banking Website

The look and feel of a banking website is very important to the users. It needs to appeal to them and achieve a balanced look and feel of the bank’s corporate identity.

This can be achieved by having a consistent design layout, good contrast for easy readability and use of visual imagery used in other media e.g. magazines, Television, Billboard so as to give the site an instant and familiar appeal with customers.

As seen on the above example taken from NIC Bank website, the bank has worked hard to achieve visual and brand consistency by using their corporate color (blue) and using video that they have been using on their T.V commercials. This immediately gives visitors to their site an instant appeal of familiarity when they land on the site.

3. Online Banking Should Be Easy To Find and Feel Secure on a Banking Website

Some of the users visiting the banking website will do so just to access their online banking. Therefore it is important to make this as simple as possible for the users. This can be done by making the option visible and easy to find throughout the website.

As seen on the above example taken from Diamond Trust Bank, they have made it very easy for people interested in online banking by placing the Login to DTB Online Banking on the sidebar of every page making it visible and easy to find when a user is on any page.

A Banking website must also remind the online banking users of how secure the site is. This is very important especially for the less-regular web users. They should also ensure that new users find information about the service and how they can register.

As seen on the above example taken from Diamond Trust Bank, they have achieved this by having a Learn more button at the top so that new customers can find information about the online banking service. They also make a great effort of assuring and advising users of their security before login to their online bank account.

Of course there are many other factors to consider when designing a banking website but the three highlighted on this post should never be ignored by banks in Kenya to ensure they have a solid online presence.

managing your finances

As soon as Christmas is over, the savers realise that they have spent more than they had anticipated. They have to save a bit more or reschedule the goals they had set to meet.

To manage unplanned spending during the Christmas season, follow the tips below and avoid regrets after the holidays

Dos to managing your finances

1. Determine the amount of money that will be needed to purchase the gifts. When this amount has been decided, move on to the next step
2. Determine the amount to be saved per month, to reach to the desired amount. Always give yourself enough time to achieve the desired amount.
3. Have a list of all the people you want to give gifts to. These lists are very important as it determines the number of gifts that will be purchases.
4. Start shopping for non perishable gifts early. Last minute shopping may mean that you spend more funds than budgeted.
5. When possible, purchase gifts when they are on sale. This may reduce the amounts used and the savings can be used for emergencies during christmas

Don’ts of managing your finances

1. Do not spend money you do not have
2. Do not borrow money from your credit cards or bill payment.
3. Do not buy unplanned items or items not on your shopping list
4. Do not go shopping with friends who may influence you to spend more than planned
5. Do not take a lot of time to shop when you know what you require. Go in and out of the shop without looking through he aisles
6. Do not window shop while carrying extra money in your wallet or credit cards
7. Do not purchase perishable presents before they are required because they will spoil. For example do not purchase fruits more than a week before they are required because they ripen and spoil before they are given as gifts

The above tips are a way to assist consumers during the Christmas  to help in managing your finances.

Justification of Corporate social responsibility by banks

The banks through Corportate social responsibility are giving back to the community to improve the communities in which they operate. Corporate social responsibility is mandated in many countries for corporates.Banks have discovered that it is equally important for business growth apart from providing excellent customer service and even coming up with very innovative products. It has therefore usual to see in the media banks highlighting their Corporate Social Responsibilities undertaken during specific periods.

Options taken by banks as Corporate Social Responsibility

• Education Foundations for the less privileged yet bright students
• Provision of much needed water, either by funding drilling of boreholes in arid and semi arid areas or where communities have no access to clean water
•  building of classrooms or schools facilities like libraries
•  hold marathons to support eyesight and/or heart operations for the people who are unable to afford the same.

Benefits of Corporate Social Responsibility to the Bank

Even though Corporate Social Responsibility is seen as of great benefit to the communities the banks also benefit from it. Some of the benefits are listed below

• Loyalty by the existing customers due to corporate social responsibility. The existing customers are proud to be associated with the bank that is having a positive impact on the community and are likely to continue banking with them
• Corporate Social Responsibility helps a bank to attract new customers. This is especially true for members of the community targeted by the bank. The new accounts opened lead to business growth and new opportunities.
• Corporate Social Responsibilities boosts the morale of the existing employees as they are proud to be associated with such a bank. This pride in the employer increases employee productivity and reduces staff turnover resulting in reduced costs associated with hiring and training of new staff.
• Corporate Social Responsibilities also singles out the bank as an employer of choice as most potential employees look to them as their ideal employer therefore they are easily able to acquire the best skills in the market.
• Corporate Social Responsibility activities act as advertisement opportunities for the banks’ products. The products sold to the community are seen more than just bank products but as products that result to  Corporate Social Responsibility
• Corporate Social Responsibilities helps in brand reinforcement among the populace. People generally easily associate such a bank and learnt to trust the bank viewing it as the one that cares for the welfare of the community.

Budgets must include the amounts that would be ploughed back to the community banks. Corporate Social Responsibility activities are important and cannot be ignored.

Reasons for agricultural financing of green houses

Many countries are dependent on agriculture. Agriculture is a major foreign income earner and it is also a source of income to subsistence farmers who sell their products locally.

In Kenya tea, coffee and pyrethrum have been the major cash crops for many years which have also been foreign income earners. However in the last few years horticultural crops, for example, french-beans, peas, tomatoes etc have also contributed to the agricultural economies of not just Kenya but of the world.

Agricultural financing of green houses has been a great challenge to many banks. The agricultural sector has a history of nonperforming loans. Since these loans have had to be written off, banks have not been very keen in agricultural financing of green houses activities.

The main reason for non performing debts has been due to crop failures as a result of insufficient rainfall and/or flooding. There has also been increased attack on the crops by pests.

Why banks support agricultural financing of green houses

In order to avoid crop failure due to changes in weather patterns, most farmers especially horticultural farmers, have turned to Agricultural financing of Green Houses and green house farming. Since banks have realized the potential in this area, most of them have partnered with the Green House expert companies to enable growth in this sector.

There is a huge market both locally and internationally for the horticultural products. This market has continued to grow with increase in population worldwide.

The partnership between banks and green house expert companies has enable salaried persons to supplement their incomes. Veteran farmers are also able to maximize on their inputs.

 Tips to help obtain agricultural financing of green houses from the bank

1. First visit the green house expert company which has partnered with the bank (this information can be obtained from the bank) where there will be a detailed explanation of what agricultural financing of green houses and green house farming involves, that is, the costs and the expected income and the period it would take to break even.
2. The customer then obtains quotation for cost of building the green house, cost of preparing the land, cost of obtaining seedlings. This will assist both the customer and the bank to determine the amount of agricultural financing of green houses will be required
3. With this quotation one then approaches the bank with a request for a loan which would not be classified as a quick loan.
4. Apart from the quotation from the company the bank will require the following details to be able to grant the loan or agricultural financing of green houses

• Proof by the customer of the current income either from salary or sale of produce.
• Customer contribution towards the project which is usually 10% of the quotation.
• Projected cash flow from the customer for the period of the loan.
• Proof of ownership of the land where the green house is to be constructed and this is by producing a title deed in the name of the customer

 Having satisfied the above conditions for agricultural financing of green houses, the bank will disburse the loan in phases to the Green house company. When determining the repayment period the bank will grant the customer a grace period (mainly six months) to factor in the construction of the Green House and planting season before harvest begins. Agricultural financing of green houses has become a niche where most big banks are completing to take the lead.

Having identified the importance of Corporate Banking, majority of banks create specific departments to ensure that their needs are met. Given the magnitude of their transactions and their importance these companies need a designated Relationship Manager.

Corporate Banking

The relationship manager provides advisory services on for example, investments and Capital decisions. The relationship manager also tries to identify change in the corporate customers’ need the relationship manager comes up with innovative solutions to meet this corporate banking need.

Managing this Relationship is slightly different from managing an SME as the failure or success of a corporate has a great impact on the Bank. So whether these Corporate Companies have credit facilities or not, the Relationship Manager should always be in touch with the following areas of the company

Corporate banking- Governance of the Company

This includes the members of the Board of Directors, the Board of Management and the management structures in place. The shareholding structure of the company and the bank also investigate the integrity of the team and what impact the corporate would have on the reputation of the company. The quality of governance is very critical as it can help determine the future of the company.

Corporate banking -Recovery Management

This is key to the stability of the business and it is important to establish in general if the corporate has a policy on the recovery from any unforeseen factors that would greatly affect the business. In other words the disaster recovery plan or the business continuity plan is very important and must be disclosed to the bank.

Corporate banking-Technology

This affects database management, establishing whether a company is up to date in technology, which is changing rapidly. Updated technology greatly ensures good database management, resulting and leading to accurate reporting, increasing transparency and accountability. Technology may also be used to reflect the financial health of a corporate.

Corporate Banking-Risk Management

Establish whether the corporate has identified the risks that could greatly affect their business. Confirm the measures that have been put in place to manage the risk. These measures must be well documented. The corporate should have unit monitoring for the ever increasing risks.

Corporate Banking -Management of Manpower

Establish whether the corporate optimizes manpower resources in terms of numbers, knowledge and even skill. This in turn maximizes productivity, improves quality of operations.

Given the current economic crises that has greatly affected many corporate companies, it would be prudent for the banking industry to keep in touch with their corporate customers operation  by providing relevant corporate banking solutions.

What are hard economic times

hard economic times

Great economies are facing hard economic times and are struggling, hence living in a country where majority live below the poverty line, things seem to be moving from bad to worse. The Banking industry is also affected by hard economic times.

If one reads the Bible, one will notice that these are not unique situation. There are stories of mothers eating their babies and people feasting on the refuse of the donkeys. People in ancient days also lived through hard economic times too.

One of the most mind boggling things about the human species is the ability to adopt and be very innovative during these times. Tough people have an inner strength and that is why they have the ability to last during tough times. It is not about physical strength but inward strength that they draw from.

 Some of the secrets for living in hard economic times

• They acknowledge the change due to living in hard economic times and that is not business as usual.
• Apart from acknowledging the times they are living in they set strategies on how to thrive while living in hard economic times. This is to ensure that at the end of these hard economic times, they will not be beaten to pulp. Put in simple words they do not just whine but take action.
•  one must avoid taking loans and learn debt management strategies

Highlights of financial strategies one would adopt while living in hard economic times

1. Stick to your budget especially on non essential expenses. Take for example your monthly budget for fuel for your car; when you realize you are spending beyond this budget then reduce the number of times you use the car and stick to the budget. For ladies maybe one should reduce the visits to the salon, one can opt to do basic hair maintenance like washing or even treating the hair at home.
2. Please do not dispose off your near cash investment to meet your daily living expenses. These are assets such as shares. After all, with the poor performance of the economy one is likely to sell them at a loss.
3. There is no use on spending on holidays one cannot afford. You can opt to take the family for a simple drive to the park and spend quality time together instead of taking an expensive trip to the coast yet they cannot afford the same so they have to borrow. Let prudence take the place of pride, put image issues aside everyone is feeling the pinch.
4. Make sure when going to the supermarket a shopping list should be in hand to avoid buying what one does not need.

In the middle and lower class bracket where the salary is not increasing as fast as the inflation rate, disciple is one of the key qualities adopted.  Let us keep hope alive as we see these hard economic times through.

Lend lease is especially important for businesses which rely upon cutting- edge technology to operate efficiently, for example, the latest computers and communication devices.

lend lease should be greatly considered by businesses in early stages of  development. lease lending is like a quick loan to a business.

 Meaning of lend lease

lend lease

Lend lease means leasing equipment where a dealer already owns the equipment that  the business requires. In exchange for the equipment, the business (that is the lessee) makes monthly payments to the owner (the lessor). The ownership of the asset remains with the lessor or owner.

Lend leasing is greatly beneficial to the company because apart from ensuring the company has sufficient cash flows, the monthly payments are treated as tax deductible business expenses reducing the tax liability.

Some of the advantages to the business to go for Lend lease are:

• Reduces the amount of cash needed to finance acquisition of equipments and machinery.
• The monthly payment structure allows the payment to be treated as tax deductible business expenses.
• Leasing also makes it easier for the business to keep pace with technology especially if the business relies on the cutting- edge technology.
• It is a faster way of obtaining equipment.

 Business considerations for lend lease financing from the bank

1. Lease term- The length of the lease will affect the monthly repayments, that is, a longer lease term means lower monthly rent to be paid and vice versa.
2. Upfront payment- the customer should establish this in light of the cash flows so as not to commit the much needed cash for business operations.
3. Monthly payments- One should analyze the amount to ensure that the cash flow of the business is not affected.
4. Return Rights- It should be clear under what circumstances the lessee can return the asset when problems are encountered.
5. Early Termination- Most lessors are reluctant to include this clause, but it would be good for the lessee to negotiate an early termination right in exchange of paying a fee.
6. Option to purchase- the lessee should also negotiate an option to buy the leased equipment at a fair market value
7. Substitution Clause- This helps the lessee update or exchange the equipment to avoid paying for obsolete equipment or technology.

Lend lease is a very unfamiliar type of lending to most businesses in developing countries. Lend lease is the next level of borrowing for companies who need to grow and manage their cash flows.

Asset financing

Asset Financing can result in majority of firms experiencing cash flow problems which lead to business failures. One may however avoid such significant one-off expenses by financing the equipment, machinery or motor vehicle through asset financing.

Asset financing means the banks provide the finance needed to purchase the asset to the customer who makes monthly installment repayments. The asset financed is used generate cash flows and the same asset acts as collateral for the debt.  His is usually not considered as a quick loan.

Asset financing has greatly helped businesses like the transport and manufacturing industries to expand and be able to plan for asset replacement. The tremendous growth in these industries has contributed greatly to the economic development by creating job opportunities.Asset financing consideration when lending to the customer:

Cash flow positioning and future projections for Asset financing

1. The customers current cash flow, that is, how much does the business generate which determines the customer’s repayment ability.
2. The projected cash flow increase. Once this new asset is acquired and operates at the optimum, there is expectation of improved cash flows all other factors will remaining constant.

Asset financing – Age and usage

1. The age of the asset to be purchased especially for vehicles. Most banks have a limit to the age of the asset they can asset finance.  This is to safeguard the customers’ interest and reduce any future high maintenance cost of the asset which would greatly affect the cash flow.
2. The use of the asset – whether it is for personal or commercial use. This mainly applies to motor vehicle purchase as machines are basically acquired for business use. If the vehicle is for personal use, then the wear and tear is not as high as when it is for commercial use.

Customer contribution and involvement in Asset financing

1. The customers’ contribution will also be taken into consideration. Most banks do not finance 100% the cost of the asset and mainly they peg the contribution on the age of the asst and even the use of the asset. The older the asset the more contribution by the customer and vice versa, while if the asset is for commercial use then the higher the contribution expected from the customer.
2. The repayment period of this type of financing will depend on the current cash flow and sometimes the expected cash flow.
3. Interest rate charged will greatly depend on the age of the asset and the use of the asset.

Small businesses should take advantage of this type of financing to enable them release their cash for trading and avoid the business being cash- starved. Asset financing is a financial solution for small and medium sized companies, which are the bank bone of many economies.