Wednesday, February 28, 2007


In the Blue corner we have Barclays!! in the Red Corner we have Equity.Lets get ready to ruuuumble........... sorry got carried away, this post is on the banking sector.The best way to do it is to focus on two players everyone talks about:-Barclays Bank(BBK)-Old style bank, majority owned by Barclays Plc+ about to be taken over by ABSA-South Africa -a Barclays Plc group co.

-Equity Bank-Indigenous owned bank that has grown @ sonic the hedhog speed.EPS is up 120% last year.
Brief Stats as at January 2007
Barclays Equity

ATM's 80 105

Branches 60 42

Pre-Tax Profits in 2006 sh6.6Billion Sh1.1 Billion
Barclays Bank
-Large Bank+solid reputation
-Large wealthier customer base
-Steady dividend payout
-Large and diversified product base e.g BarclayCard credit cards,Wealth management,Trade Finance....

-Owned by Barclays Plc. so London will always guide major decisions.Compare that with Equity Bank that bought its IT software from the best vendor(according to mgt.)- INFOSYS of India.If BBK had to make a similar decision it would probably buy whatever software the Plc. uses

-Attempting to copy Equity Bank retail model.However, the clients they are going after may be sub-prime and they may not have the experience of dealing with them.NPA's may rise.By the way they're doing something similar to Equity in Ghana.

-Takeover of Barclays Africa by ABSA. I hope this doesn't distract the management of BBK from the task at hand.

Equity Bank
-Great banking model.Everyone is trying to copy it from BBK to Co-operative Bank
-Fast growing.Earnings are up 120% for 2006.A bonus offer has been given signaling further earnings growth
-Largest ATM network.equity has bought 100 ATMs read here for more.This should bring their ATMs to more than 200 at the end of that with 200 that Barclays will have at the end of 3 years.
-Aware of their market position and their competitors.So they have an awareness of where they are going and what copmetitors are upto.
-Low cost base.Equity can give you a loan of Ksh 10,000.I think the lowest Barclays can give is Ksh 50,000.Below that their(barclays) cost structure can't allow it.

-At some point the 100% growth will slow down.According to the prospectus(for the NSE listing) this will be around 2009.
-All fast growing banks have had to deal with larger NPA's at some point.Will this ever happen to Equity?
-Public perception-The public has always viewed the bank as belonging to one community.The other thing is that middle class/upper Kenyans believe that a white,hopefully) British man has to be at the back of any successful Bank.

My thoughts
I think Barclays should stick to its current clientele and try to make services better for them.E.g. Barclays had a cash/cheque deposit at Queensway that used to work. Not anymore.You have to go into the banking hall to deposit.

Barclays should try making its other services e.g Credit cards better.e.g.if you pay your card bill by cash-it takes upto 3 days to credit your Barclaycard.
I think the shift downmarket may slow Barclays' profit growth.Equity still has room to grow i.e. as they increase branches, the deposits will grow.However, at some point in the next 3 years growth will stabilise to normal levels and the management will have to consolidate the gains.At that stage is when management will be tested.
Equity has avoided the blunders of earlier Local banks i.e. depending on one group of depositors.i.e EURO Bank got most of its deposits from Parastatals.So, when politicians changed and deposits were recalled, there was no way out but down.

The other reasons why i'm confident about Equity's stability are:
-CBK supervison has greatly improved.CBK now monitors Banks much better.Before any results are given to the NSE or Public,CBK goes over them.To make sure all is prudent.
-Equity uses a 30 day period to classify loans as Bad or good.This is more conservative than the 90 days CBK regulation.(read the prospectus)

Where my money is
My money is on Equity,i think they will outperform the market in the medium term(3-5 years).i have bought it for capital gains.
Barclays is too big and if they grow bigger(from 60 branches to 120 branches),they might loose focus.I dont expect them to outperform the market in the next 3-5 years.But the dividends should remain great
Barclays is approaching the statutory limits of lending thats why dividends were low for 2006.(Earnings were retained in order to increase capital)

Barclays for the dividends, Equity for the capital gains.With the downward trend in prices it will pay to wait and add once the retail investors on the exchange panic and sell. But for equity buy at any price below sh.230/- because you get 3 shares for the price of 1(Cum-bonus).
Chill and pick Barclays at sh.60 and below.

For those who want to read more
"Understanding the Re-birth of Equity Building Society in Kenya" An interesting study of how Equity moved from an insolvent Building Society to a successful one and finally to a bank.This study was done in May 2002 but the issues raised are still relevant.

An interesting article in THE BANKER about Barclays Plc and its plan for Barclays Kenya(Found the link on Kenya Capital).Click here


Kudrinketh said...

Good stuff,I think best strategy is to own both.Equity will continue to do well so long as the economy maintains its current growth rate.

Barclays on the other hand is like a blue chip for all seasons, and especially if the economy nosedives expect Barclays to outperform Equity.

I still think Equity is currently overpriced, I would wait until it goes below 150/-

Barclays is a BUY below 60/-

Anonymous said...

put my savings in barclays and invest in equity

Anonymous said...

Woooo it sound well but my simple request to all that wish to read and analyse it objectively. Equity is one community affair and I will be really happy if the management can diffuse this whereby they make it look Kenyan and it will attract many customers like us who are big investors.
This is a lovely bank where all Kenyans will love to associate with but the issue of ETHINICITY must be looked into and every kenya atajivunia Kuwa mwanaEquity jameni
Gibson Amenya

Odegle said...

the rapid growth of equity especially since 4 years ago causes my stomach to threaten to run! is this growth founded on sound structures or is it amorphous. is it true that Kibaki and his close allies have majority share holding in the bank? will they want to use some of those shares to finance what promises to be a tough re-election campaign? could some of the anglo leasing money have found their way into equity share register? if so, could the bank face legal issues with the next govt?

as for BBK, forgive me but for its history, capital base and richness of cross cultures (intercontinental) , its unfair to even begin to imagine it on the same stage with equity!

Outfoxed said...

I''m surprised at Odegle's and anonymous comments on Equity due to ethnicity and suspected political links.

As a savvy investor, one should not get emotional but simply look at the future profitablity and growth prospects of the company.Period!

Pesa Tu has done a brilliant anaysis on the key issues one should look at. I agree with her on most points.

Having said that, i've build a nice "golden nest" by investing 40% of my portfolio on Equity Bank. I'm currently eyeing BBK price movement and will pounce on the shares once the price is right.I currently have a mere 3% of my portfolio on BBK.

MainaT said...

Pesa-tu-I agree with you on Equity. The CEO is a career banker-worked for Barclays at one time btw. More importantly, the have a first-mover advantage. The model is one that is African-made i.e. easily transferable to our brethren in East and Central Africa. So the future is in their hands. I keep getting nervous about the NPAs-but its the sort we won't find out about unless there is an economic downturn. As for BBK, I think having ABSA who are successfully competitive in the SA retail market is a bonus.
Od/Anon-plse guys (research, research) and stopping seeing a conspiracy in every success story. Equity largest 10 shareholders whose names are in their prospectus btw, have been with them since their rebirth in 1993-the largest individual single shareholder is a chicken farmer from Sigoni

Odegle said...

i learnt from the sage of warren buffet that you must be bearish when everyone else is bullish and vice versa.

and again, investors have to look at the ownership of firms be they successful or not. thats why in SA, we used to see the index going down each time Mandela became frail. investors normaly watch out for anything that can threaten their investments. as for the issue of the share register ... well do i have to comment on that really? i suppose you are kenyan.

Please people do not see hate in anybody who tries to see things different from you. last year when i talked abt price manipulation at the NSE i got this same kind of treatment.

on another note, i got a mail from microsave about equity but i could not read it. the doc was jibberish, if you are the one who sent it, please resend


pesa tu said...

@kudrinketh: agree on the below 60/- for Barclays

@anon:You save with your heart BUT invest with your head.

@gibson amenya:You r so prejudiced.
One of the reasons for listing Equity is to shed this tribal tag.
Equity acquired the 'kikuyu' bank tag because it started operations in Central Kenya and for a long time it has had most of its branches there.Also the ethinicity of the founders has contributed to this image.

However, Equity is not a 'kikuyu' or any other tribe's bank.Its a bank for all kenyans regardless of their race or tribe.To the best of my knowledge it bases its decisions on sound business principles and NOT tribal ones.
Using your narrow princials, why dont u avoid CITIbank,Barclays,Stanchart,Diamond Trust...etc because their owners are Asian and European so they are european/asian banks.
You DONT avoid them- you actually use their services.

As EQUITY grows out of Nairobi and Central to other parts of Kenya ,this negative tribal tag will diminish, because people will see it providing services to Kenyans of all tribes all over the country.

The mgt. of Equity is aware of this problem(page 25 of Understanding the Re-birth of Equity Building Society in Kenya)

pesa tu said...

@Odegle:Divergent views are encouraged on this blog.Differing views assist us to find the truth.Everyone is free to express their views on this blog
I sent the microsave note doc. to u. Just download it from the link below.
The supposed political/tribal connections r merely circumstantial.In fact the previous Kanu/CBK regime saved Equity more than the current one.For instance, CBK should have closed down Equity Building Society in 1992 when it was insolvent BUT it kept it open and granted it a lifeline.(page 35 of Understanding the Re-birth of Equity Building Society in Kenya)

Equity is growing because it has a good biz model and a robust IT system and NOT because of any political/tribal patronage.
Everyone is copying EQUITY's business model.Just look at Barclays.

The Bank is politically neutral and wont have a problem, whoever comes into power in 2008.After all, it had a lot of growth in KANU times.The majority shareholding is by the employees,top-management, BRITAK(British-American Insurance subsidiary/associate) and AFRi-Cap fund AfriCap Fund

On the issue of comparison,i'm comparing Barclays-Kenya to Equity NOT Barclays Plc to Equity.
At the end of 2007 Equity Bank will have more ATMs than Barclays i.e Equity-205 ATMs,Barclays -100 ATMs.At the same time Barclays is copying Equity's model.Why not compare them

Equity is coming up with a POS deposit/Cash withdrawal product.If it comes takes off it will totally beat all other banks in terms of innovation.It will be equivalent to the launch of ATMs in the early 1990s

Remember,Equity has internet banking for Retail clients, I dont think Barclays has.

Download+read this paper "Understanding the Re-birth of Equity Building Society in Kenya"
It will answer most of your questions.

Dont worry about growth, it will slow down around 2009, once their branches r all over the country.

@Outfoxed:Ditto! but i have a dick.

@mainat: I think he worked with Tradebank (not sure).Their unique model is what's making them successful.Unlike K-Rep and other MFI's that are following a variant of the Bangladeshi/GRameen model.

@everyone: No hate, if u have anything to say,say it on this page.

Ruheni said...

Refreshing comments from all of you. I too think the tribal aspect is being over emphasized. Important is the peformance of the management irrespective of their ethnicity and from what I read and hear, Equity has a suberb kenyan management we should all be proud of! I intend to open an account with them next time I am around...

MainaT said...

Pesa-you are right on Mwangi he was E&Y and Trade Bank. Btw, i think the 2009 is more their growth target for Kenya. The model is very portable throughout East and Central Africa.

MainaT said...

Ruheni-where are you based-abroad I assume? Equity are now offering internet accounts for Kenyans in the UK and probably in the US later in the yr.

Kudrinketh said...

There are several things that worry me about Equity and I invite y'all to poke holes into my agruments:

The fact that their method can be easily duplicated by other banks.Check out this scenario,lets assume Barclays duplicates Equity's method(as they alledgedly are doing).I bet you most customers will go with Barclays simply because of its name and reputation.Remember how co-operative's childrens' account was copied by most bank thus making it lose its monopoly on those accounts?

Its exponential growth raises concerns over potential default when the economy slows down.I cannot have any confidence in a bank until it has survived a couple of recessions and lived to see another day.(Equity's previous status as a building society does not count,at least one can reposes a house unlike unsecured loans)

I generally dont trust banks because they are masters at cooking books(please believe me,i'm a banker).Right now they are probably including interest accrued on non performing assets(NPA) in their earnings results(all banks do, I just would like to know by how much Equity does it)

As far as Equity's tribal/political affiliation,this is irrelevant but Equity has to portray an image of diversity by hiring a more diverse senior management if just to lose the tribal tag.I think they're pretty politically neutral.

Odegle said...

Pesa tu, thank you for the assurance.

Kudri ... you have said it for me.

and let me put it clearly before it goes too far. I dont care about the tribal leaning. its all hogwash. in fact if it mattered then i would not be investing in the NSE since its dominated by the kikuyu, that would mean, i would also stop going to my church since its mostly kikuyu, or to my medical center since most attendants are kiuk ,or to my barbers since the chicks are kiuk (and boy are they cute!) , finanly i would have to leave nairobi and kenya since kenya is indeed full of kikuyus!!!

but please look at what i said again and look at Kudri's thoughts. equity has just leapt from no where since 4 years ago. most of those braches came up just the other day. in fact i invite you guys to be more objective as far as equity is concerned, its being 'kenyan' or african is not enough for the security of your savings.

MainaT said...

The proof of the pudding is in the eating-so lets hope we'll all stay interested over the next 3/4 years. Nothing Kud has said is new i.e. concerns over NPAs, inclusion of interest from NPAs (which is allowed in accounting as long as you also include the interest expense for the same).

MainaT said...

Btw, Equity has been growing its deposits exponentially since 1995.

Ruheni said...

MainaT, I'm in Germany. Hv sent them a mail on whether it would be possible to sign up while here but hv so far received no response. In any case I'm comforbable with my bank except for the bad exchange rates at the CBA with Eqity offering better rates. I would use Equity to chanell the funds from abroad and transfer smoe part of them m to CBA to cater for the risk if Equity at one time heats up...

MainaT said...

ruheni, try this lady( is part of Moneylink, their partner in the UK.

bankelele said...

Barclays hands down by one measure; Management.

Anonymous said...

I'd be for both. Just like all other banks, Barclays is trying to stretch out to the corporates and the retail bankers alike, and so is equity. Whereas Barclays can benefit from locally getting hold of the branches they previously left out, Equity is bracing itself with the so called non-bankable population-where probably every other bank is trying to reach out to. Emotions aside, both banks have equal competences.

Sanlihp said...

Pesa tu, and all that hold on with the hope for bonus shares:please note that the bonus will not accrue to shareholders who came in during and after the listing in the NSE. You will only be entitled to the dividend of sh.2. As for the bonus, its only for those who held the shares as at 30th September 2005...then it was trading over the counter.And you are lucky if you held the shares then! Please refer to the AGM notice article (6) in the link below..

Otherwise I think the best strategy am taking is to hold my cash till after the AGM on 30th March and the bonus shares have been distributed to buy them off from those who will be disposing as I anticipate a glut in Equity shares that will bring the prices down to levels below 200/180.

How will they handle customer who sold there holdings over the counter but were in the books as of 30.09.2005 and do not even have a CDS account now?

pesa tu said...

@Sanhlip:There are two bonus issues
There was a bonus issue in 2005(ratified by 2005 EGM).The announcement in the AGM notice refers to that 2005 bonus.
There is also a second bonus issue for 2006.The X-Bonus date for that one hasn't been announced.Yes, u will get bonuses if u buy know but the 2006 bonus of 2:1(to be ratified in 2007 AGM).
I cant remember the ratio for the 2005 bonus.(i think it was 5:1, not sure)coz issued cap jumped from sh18 mil to sh 90mil

If u sold and dont have a CDS, they will mail a Certificate to your last address.

I dont expect a glut if u sell x-bonus as a large holder, your stake gets diluted.But i expect a downward trend given the sagging NSE

pesa tu said...

@Emerging Africa:A punt on both eh?..
@Kudri:Equity was a Buliding society in name only.
They will have to diversify mgt. and have more Onyango's, wafula, ruto's and even Patel's in the management if they r to have a diversified outlook.

@bankelele: True thats why the consolidation phase after 2009(after the fast branch growth has stopped) will be important.
I expect EQUITY to sell a large stake to some Multinational then and get this mgt. expertise they need.
@Odegle: Equity leapt from nowhere on the basis of targeting the 'unbanked' and having transaction rather than ledger fees.

ka-investor said...

Equity: I have a strong feeling this is a political bank and most of its revenue are government generated. If ever have illegal dealings and you need some where to keep your killing this is the right bank to work with. they will open an account for you without even asertaining who,what,where and how. But any way i applaud them for the impresive work they have done over 2006. Lets hope this will still be the case in the next 3 - 4 years. I would hate to see a big negative variance in their profit this fiscal year.

Barclays: STRONG! VERY STRONG! I would choose this bank any time anywhere and if they are reaching out using the Equity model i fore see some serious competition and foul play {i won't mention from who coz its obvious} But then again who knows, multinationals have strange ways of surviving market imbalances.

Investing Decision: I will rather make my capital gain on Equity and bank with Barclays.

Ruheni said...

kudri, you may be right with the diversification of te management. But how come no one really cries foul on asian banks (and other companies)? They all have asian managers all over - maybe all the qualified onyangos and rutos are already working for other banks. The biggest mistake would be to put up people on the management just for the outlook. Remember the failiers of the africanisation projects in Africa?
ka-investor: please detail how Equity is politically connencted!!

MainaT said...

Ka-investor-don't fall under the temptation to blow hot air to fill a page. Equity was going to be closed down in 1992-but wakahurumiwa na CBK under Moi govt! Pesa-tu has given you the link to its history-and they didn't write it-read, read.

I really don't understand what the issue is with Equity's management composition. As Ruheni says virtually every successful Asian-owned is filled with relatives-only exception I know is NMG.

MainaT said...

Ka-investor-don't fall under the temptation to blow hot air to fill a page. Equity was going to be closed down in 1992-but wakahurumiwa na CBK under Moi govt! Pesa-tu has given you the link to its history-and they didn't write it-read, read.

I really don't understand what the issue is with Equity's management composition. As Ruheni says virtually every successful Asian-owned is filled with relatives-only exception I know is NMG.

pesa tu said...

@Ka-investor:EQUITY has no Government Deposits.So, no political risk