BY LOLA OKULO

INTERNET and mobile bank-ing has paid off for banks with the sector registering two million new accounts in the rst quarter of the year.According to the Central Bank

of Kenya survey for quarter one released on Friday, the industry made a pro t before tax total-ling Sh33.42 billion a modest rise of 0.4 per cent compared to Sh33.28 billion recorded in December. Despite the pro t, in-come by banks decreased slightly by 1.2 per cent to Sh95.05 bil-lion.

Over the period the number of deposit accounts increased from 21.8 million in December 2013 to 23.8 million representing a growth of 9.2 per cent.

Over the same period last

year, the deposit accounts grew by more or less the same mar-gin by 9.1 per cent to 17.3 mil-lion accounts. CBK data shows that 1.4 million new accounts were opened during quarter one 2013.

Though loans and advances rose seven per cent to Sh1.69 trillion during the quarter, the survey notes that credit to the energy and mining sectors de-clined as the repayment rate in this sector surpassed new loans given.

Deposits made up 72.3 per cent of the sector’s funding li-abilities as they grew from 1.94 trillion as at December 2013 to 2.04 trillion by end of March. This, CBK said was driven by branch expansion, remittances from the diaspora, receipts from exports and adoption of atrena-

tive channels of delivering bank-ing services.

Total bank branches in the country stood at 1363 over the period.

Banks increased their capi-tal with the industry registering a growth of two per cent from Sh418.2 billion to 426.6 billion. Shareholders funds rose by ve per cent from Sh432.2 billion to 453.6 billion.

“However, the ratios of core and total capital to total risk-weighted assets decreased from 17.9 per cent and 20.7 per cent to 15.7 per cent and 18.2 per cent respectively,” said the CBK in the quarter one industry re-port.

Gross non performing loans increased by 16.1 per cent to Sh95.1 billion from Sh81.9 bil-lion in December.

THE STAR Monday, June 16, 2014 LOCAL 43

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The government on Thursday announced a S1.58trillion ($18billion) budget for fiscal year

2014/15 (July-June). The Cabinet secretary said in

his statement:“We forecast our economy

to grow by 5.8 per cent and 6.4 per cent in 2014 and 2015 respectively.”

Given the cratering of two of the four $1b pillars of our economy [tourism and tea the other two being horticulture and floriculture], the 5.8 per cent GDP call looks a very highball call to me. My model has GDP at sub five per cent. The new insecurity normal has sent con-fidence indicators to multi-year lows and domestic confidence needs some repairing.

Interestingly, the budget typi-cally [well at least for the five years] overestimates revenue collection and we have to build in an undershoot of spend-ing. Disruptions in government spending in the months follow-ing the March 2013 parliamen-tary and presidential elections contributed to holding back government spending growth to 6.4 per cent in the first three quarters of the FY13/14, considerably below forecast. The government is targeting an overall fiscal deficit of Sh342 billion ($3.9 billion). I expect the fiscal deficit to materially under-shoot the targeted fiscal deficit of 7.3 per cent of GDP and the Sh341 billion that the Cabinet secretary tabled before the House. The CS announced that the deficit is to be financed through net external financing of Sh150 billion and net domes-tic financing of Sh191 billion. Some folks have been shud-dering at a Sh191 billiong call on the domestic markets but I am inclined to the view that the call will turn out to be a lot lower.

In the prospectus for the Ken-yan Eurobond, the Treasury has stated that the pending revision of Kenya’s national account

statistics, which will change the base year from 2001 to 2009, has added 20.6 per cent to the estimate for nominal GDP in the latter year, lifting it from $31bil-lion to $39 billion, with better data collection methods reveal-ing higher economic activity in the agricultural, manufacturing and communication sectors than previously estimated. This will serve to reduce the fiscal deficit and public debt as ratios of GDP by approximately a quarter.

Recent debacles in Ghana and in Zambia confirm that ‘’ a failure to contain the recurrent-expenditure envelope risks, over the medium term’’ carries very severe risks. With our Eurobond soon to be placed at a pre-dicted yield of 6.75 per cent to 7.25 per cent and a four times oversubscription for a $2 billion issue, Kenya will be much more beholden to bond holders, who will have the ability to price our credit on a real time and con-tinuous basis. I believe this will be a positive catalyst and it will contain risk over the recurrent expenditure component.

The republic has a poor free cash flow profile and as we leverage our balance sheet, con-taining recurrent expenditure and resizing the government is going to be a political impera-tive. Otherwise we are going to be find ourselves exposed to macroeconomic imbalances and loss of investor confidence like that currently plaguing Ghana and, to a lesser extent, Zambia.

I expect the fiscal deficit to end this reporting period at around 5.5 per cent versus the 7.3 per cent stated in the budget statement.

The Cabinet secretary has committed to “develop a long lasting solution within the next few months” to resolve the VAT refunds backlog issues. The VAT refunds Issue is direct evidence of the poor free cash flow posi-tion. This VAT refund issue is now untenable.

Shares go up and down and readers are advised that this column repre-sents Mr Satchu’s personal opinions.

DELAYING VAT REFUNDS IS UNJUSTIFIED

CHANGE: People queue inside a bank for transactions. Mobile and internet baking are taking root.

Photo/ FILE

State to promote local leather industryBY STAR CORRESPONDENTTHE government will revitalise and promote the local leather in-dustry, Industrialisation Cabinet secretary Adan Mohamed said on Friday.

This, he said, is part of a ve year strategy that will be facilitated through various programmes in conjunction with county governments.

Speaking during a visit to Bata Shoe Factory in Limuru,

Mohamed pledged to provide further support for value ad-dition to promote local leather processing industries.

He said the leather industry, has a capacity to make a signi -cant economic contribution of up to $630million (Sh5.5 billion) of the GDP.

Mohamed said despite a heavy demand of up to 28 million units of leather annu-ally, most of this is imported as

Kenya can only supply less than four million units annually.

“The government will spare no effort to ensure that we revive and strengthen the lo-cal leather industry for our domestic consumption and export,” Mohamed said. And added; “With the global leather demand now estimated at more than US$ 60billion, we must work hard to grab a share of the cake.”