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Recent Topicals

Focus of the Week: Kenya Listed Banks Q1’2017 Report

Jun 18, 2017

Following the release of the Q1’2017 results by banks, we undertook an analysis on the Kenyan Banking sector to point out any material changes from the FY’2016 Banking Report. In our Q1’2017 Banking Report, we analyze the results of the listed banks in order to determine which banks are the most attractive and stable for investment from a franchise value and from a future growth opportunity perspective.The report is themed “Consolidation and prudence in a challenging operating environment” as the banking sector is witnessing increased consolidation while remaining prudent following rising non-performing loans and the capping of interest rates. Below are some of the themes that shaped the banking sector in the first quarter in 2017: Co...

Focus of the Week: Nairobi Metropolitan Area Land Report 2017

Jun 11, 2017

Over the course of last year, we covered real estate performance across the various themes, including commercial office, residential, retail and hospitality. We saw that these sectors have over the last 5-years delivered high returns of over 25.0% p.a, driven by continued improvement of the Kenyan economic climate, improved infrastructure and the growth of the middle-class, leading to increased disposable income.  This week we turn our focus to land, the capital asset on which real estate is developed.We carried out research on the land sector performance in Nairobi Metropolitan Area over the last 5-years, between 2011 and 2016. The research was carried out in 18 suburbs and 11 satellite towns in the Nairobi Metropolitan Area as classified below. The findings and analysis are presented in the analysis below. We start by an introduction to the sector, the factors driving the performance, the performance of the sector according to zones and locations, and concluding by ide...

Focus of the Week: Joint Ventures in Real Estate

May 28, 2017

In the last 5-years, the Kenyan real estate sector has performed well realizing returns of above 20.0% p.a for investment grade real estate and thus attracting the interest from landowners and investors. The main ways to invest in real estate include (i) development and exit through selling or renting out, (ii) buying real estate products to realise capital gains and rental yields, and (iii) buying real estate-backed structured products such as project notes and Real Estate Investment Trusts (REITS). Land owners in particular are increasingly interested in real estate development but are constrained by (i) financial capability, (ii) development expertise, and (iii) time to do the development themselves. Unknown to many, joint venture arrangements with reputable developers is the most prudent way to tap into the real-estate-benefits. This week, we demystify real estate joint ventures and highlight their benefits.What is a Joint Venture?A joint venture (...

Focus of the Week: Cost of Living

May 21, 2017

The Economic Survey 2017, published annually by the Kenya National Bureau of Statistics, revealed that GDP is estimated to have grown by 5.8% in 2016 from 5.7% in 2015; this was in line with our expectation of a band of 5.7% - 6.0%. In order to assess the cost of living, we have picked two components of GDP, agriculture and financial intermediation, because (i) food is a big component of the Consumer Price Index (CPI) and a necessity that is produced through agricultural activities, hence knowing how the agriculture sector performed will give us insight on food supply and prices, and (ii) knowing about the growth of money supply in the economy and credit accessibility to households will give us an indication of household income and whether they can easily subsidize this with credit when the need arises. Agriculture’s contribution to GDP declined by 0.4% to 21.8% and its weighted y/y growth rate slowed down to 4.0% from 5.5% in 2015. This was attributed t...

State of Interest Rate Caps

May 14, 2017

The Banking (Amendment) Act 2015 has drawn both plaudits and critics since its introduction in Q3’2016. The amendment stipulates a deposit and loan pricing framework, with (i) a cap on lending rates at 4.0% above the Central Bank Rate (CBR), and (ii) a floor on the deposit rates at 70% of the CBR. There was a mixed view on the impact of capping interest rates, with some looking at it as being able to make loans accessible to most Kenyans, while others viewed the introduction of the rate cap as being detrimental to the economy. We wrote severally on the matter, and also an article summarizing our view at the time: Interest Rates Cap is the Kenya’s Brexit – Popular but Unwise. Now that it is months after the law came into effect, we have seen some activity aimed at looking at the impact that the capping of interest rates has had so far on the economy. In January 20...