Banking Amendment Act 2006.. aka how greedy banks will have to slow down

An amendment of the Banking Act passed by Parliament and and assented to recently. Some of the measures provided in the legislation include:

-Giving Central Bank of Kenya(CBK) more powers to regulate the Banking sector i.e. some of the powers vested in the Minister of Finance have been moved to the CBK. -CBK to vet new and existing owners and directors of Banks.It can even ask existing owners who dont pass the muster to reduce their holdings to below 5%.

-The charges banks can levy on Savings,fixed deposit and 7 day call accounts to be restricted.

-The in duplum rule, that restricts oustanding amounts on bad loans to not more than double the Principal to be effected.i.e. Interest stops accruing once it is equal to the Principal amount borrowed.

Dont celebrate yet because the rules only come into effect once the Minister of Finance Gazettes them.

Look at this Letter of Intent and Memorandum from the IMF in 2004.Specifically item 22.You realise that we are merely implementing what IMF told us to do in 2004.
Click here for the IMF letter.

PS: I noticed that the IMF letter doesnt display when you go to the IMF site.
Type or Paste the following words " kenya+2004+letter+intent " in the IMF site search box, then click on the first search result item to get to the letter.

Picture of Fistful of Dollars courtesy of blackentrepreneurshalloffame.blogspot.com

TOP NSE INVESTORS IN 2006

I was mucking around on stockskenya when i came across this link.It is a compilation of the top 10 shareholders of various companies listed on the NSE.

The list is compiled by the Financial Post.It was made last year-so there are a couple of changes, if you use current prices to analyse it.

One thing you will note about the list is that wealth on the NSE is concentrated among a few groups.For instance, ICEA ,FCS and NIC bank are listed as separate bodies but they share the same ownership.

Here is the list http://www.financialpost.co.ke/Pdfs/TOP%20NSE%20MILLIONAIRES%202006.pdf.
RIGHT CLICK and SAVE as to save it to your computer.

Regret
I wish i had bought KPLC(plus not sold EABL before the split) when it was Sh6(about 4 years ago), i definitely would be on this list.
Buy and hold good companies and slowly build up your stake over a 5-10 year period. 1,000 shares of a company every year for 5 years = 5,000 shares.Inflation,bonuses and splits will do the rest of the work for you.

By the way other bloggers-Odegle and Kenya capital have covered it in their blogs.

THE SHILING AND MPAC

The shilling has strenghthened over the last year from a sh74 to the US Dollar to Sh69.This has been good news for importers since the cost of imports in Shillings has declined.However,for Exporters income in shillings has decreased.
Here's an example to show how the Shilling affects importers.Assume that X ltd(fictitious company) imports a steel bolt costing US$ 1000(and this price remains constant).The cost of the import when the US$/Ksh exchange rate is sh74 is Ksh74000 i.e.(1000 x 74=74,000)
When the US$/Ksh exchange rate is sh 69. The cost is Ksh 69,000.Thus the change in the exchange rate from US$/Ksh 74 to US$/Ksh 69 leads to a drop in the cost of importing the bolt from Ksh 74000 to Ksh 69000.
The strong shilling has mitigated the high oil prices in the last two months i.e. if the shilling had gone from US$/Ksh exchange rate sh 74 to sh80, a litre of petrol would have been around sh 90.

However, the strong shilling will affect our key foreign exchange earners like agriculture , tourism and even manufacturing.It makes our tourist facilities more expensive.i.e. A hotel room that cost Ksh 20,000 when the US$/Ksh was 74, cost US$270 But when the US$/Ksh rate moves to Ksh 69 the cost is approximately US$289, a rise of US$19.Dont forget Agriculture and Tourism contribute a huge portion of our National Income.A weak shilling would be the best for these sectors.But a weak shilling would lead to an increase in inflation through higher oil/energy prices and the ripple effect to other sectors.
Higher inflation=Higher cost of living BUT a stronger shilling undermines our exports and makes it harder to set up manufacturing facilities for export oriented products and services.
STRONGER SHILLING OR WEAKER SHILLING that is the question.Which is the better one for Kenya?

Monetary Policy Advisory Committee(MPAC)

It is formed under the (Central Bank of Kenya) CBK Act to advise the CBK on Monetary Policy.The committee is composed of distinguished Kenyans who have a record of having accomplished something in their respective fields. i.e. Prof. Terry C. I. Ryan( A former economic Secretary),Mrs Sheila S.M.R. M’Mbijjewe(Former Finance Director at Standard Chartered Bank) and Mr. Wycliffe Mukulu(A banking consultant).Click here to see the MPAC's latest report.
The issue of whether we need a stronger or weaker Shilling is one of the issues that the MPAC is studying.See more in the MPAC report.

The report states that they will hold regular media briefings to inform the public on their work.

Rumours

Heard a nasty one this week to the effect that a certain fast growing Bank wants to release its Accounts for 2006 by January 25th 2007.Utter,utter non-sense,it takes a while for all the issues between an auditee(especially a bank) and the external Auditors to be settled before the final accounts are issued.

For a large bank this would take upto early March(If the year end is 31st December).Unfortunately,this kind of baseless rumors are what are driving some sections the NSE.I pity the novice investors whose decisons are guided by such information.

Here are a couple of stocks i'll watch in 2007 and why.

1. BAT
This company will surprise us with the growth in the export business.Exports have risen to more than 40% of revenue.
The Anti smoking Legislation will make it harder for new competitiors to get into its market.i.e. the cost of doing Tobacco business will rise
I also like its dividend yield at >people tend to forget the other side of investment gains is dividends Not only capital gains.

On the other hand, the market may well ignore it.At sh190- sh200 its too expensive for the average retail investor.

2. Equity
Going by the latest half year and quarterly results Earnings will double.The only darkside is the rising Non Performing assets.The performance is beyond the 40-60% earnings rise predicted by the management during the NSE listing.

It has good management and it still isnt all over the country.

3. KENGEN
I hope all those retail investors who bought start cashing out soon so that i can get in at a nice price i.e. under sh.26.

Its well run.The only problem is that its under the State Corporations Act meaning that a new Government in 2008 will lead to changes in the management

4. TOTAL
I expect earnings to decline but management may retain dividend payout at sh2.50 or Sh2.00.I'll increase the stake coz i love the dividend yield.
I dont know how the energy bill will affect the Oil sector.Will let u know once, i read it.

5. Standard Group
Perennial laggard but has impressive assets i.e. KTN Tv and the Newspaper distribution service.This is a company crying out for a takeover and management turnaround.
I will buy it speculatively,since i'm sure that in the next 18months somebody will make a bid for it.
I hope they set up an investor section on their website like Nation Media group.Otherwise, how will potential investors get financial information on the Group?

I only buy companies that are doing well/well managed in their sector and have room for long term growth(i dont worry too much about the share price as long as the P/E isnt too high).

CO2 testing for Motor Vehicles comes to Kenya

NEMA(National Environmental Management Authority) formed under the THE ENVIRONMENTAL MANAGEMENT AND CO-ORDINATION ACT, 1999 will now monitor Carbon dioxide(CO2) emissions from vehicles.
Legal Notice No. 131 published in the Kenya Gazette late last year, provides for this.This legal backing will ensure that CO2 testing for cars doesn't suffer the same fate as Alcoblow.

The Traffic Act only outlaws visible smoke from vehicle exhausts.The Legal notice sets out the maximum acceptable CO2 emissions for various vehicle classes.

The emissions testing law comes into effect on 1st February 2007.

The winners
Environmentalists-we can now have a cleaner environment.

Motor Vehicle mechanics-They will have to service vehicles to pass the test.More business for them.e.g. according to the rules your vehicle can be disqualified from the test for having a leaking Exhaust pipe.

Spare parts Dealers/Petrol stations -The Legal notice provides for licensing of dealers in fuel catalysts

Insurance firms-If they have their way they can have a roadworthiness test worked alongside the emissions testing programme.

NEMA/Government-More revenue in form of fines and fees for the tests.

The Losers
Motorists

More costs to be incurred to comply with the rules.By the way the penalties under Section 140 of THE ENVIRONMENTAL MANAGEMENT AND CO-ORDINATION ACT, 1999 for non- compliance are stiff.Click on the highlighted words above to go the ACT.

Business

We now become one of the countries with a stricter environmental regulatory regime in the continent.

Implementation
I hope its done in a phased manner and not a haphazard way. i.e. NEMA doesnt wake up one morning and say we must all comply in a week's time or face prosecution.