Githae takes stockbrokerage services to rural investors

Banks are set to start offering stockbrokerage services in their premises, opening up the capital markets to remote areas that are currently not served by stockbrokers.

Finance minister Njeru Githae has proposed an amendment to the law, which currently restricts the lenders to only accepting deposits and giving out loans.

“The trend globally is towards convergence of financial services where banking, insurance, and stock brokerage are being offered under one roof. In order to facilitate a one-stop shop financial services solution, I propose to amend the banking Act to expand the scope of banking business to include financial services that can be offered by banks,” said Mr Githae in last Thursday’s Budget statement.

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The move could, however, be seen as running contrary to the trend in developed financial markets where regulators have been pushing for a disentangling of banking conglomerates in the wake of the 2008 financial crisis.

The Capital Markets Authority (CMA) has termed the move an opportunity for market intermediaries to broaden their customer base through the banks’ vast network without opening new branches.

“This is an opportunity for the capital markets intermediaries to leverage on the wide banking network to extend their services to other parts of the country,” said CMA chief executive Stella Kilonzo in a statement.

Regulation

Currently, banks have to register custodial business units that allow them to contract brokers who execute on their behalf trading instructions received from the banks’ customers.

The new regulation would allow banks to serve as outlets for registered agents, without registering a different business.

“The equity business may grow because of the business we get through them but not the fixed income segment, which has always been conducted through banks,” said Bob Karina the MD of Faida Securities.

As at last year banks had 1,161 branches spread across the country.

The expansion of the definition of the banking business also provides opportunity to insurance and telecommunication firms to expand.

“It is not clear, as the CBK is yet to prescribe the particular services, but it is anticipated that the recently introduced agency services by banks and M-Pesa type of services will be included. Thus, the providers of these services will be affected,” said audit firm Deloitte in a post-budget review.

Trading of fixed income instruments is also expected to be expanded following amendment of the Central Depositories Act to allow use of a single account in trading both equities and fixed income securities.