StanChart eyes SME networks to grow loan book

Standard Chartered Bank is seeking to strengthen its corporate business and tap its parent company’s vast Asian network to boost earnings.

At a time when size of the bank’s loan book has remained flat and yields on government securities have edged downwards, the need to rev up lending and have become acutely apparent.

Mr Richard Etemesi, Standard Chartered’s Bank Kenya’s chief executive officer, said the bank plans on deepening the relationships in global corporate and financial institutions while selectively growing the local corporate, commodity trading and agricultural segments.

“We intend on having a consistent campaign to SME (small and medium enterprises) clients and providing them with a unique network between Kenya, India, China, the Middle East and South East Asia,” said Mr. Etemesi.

The Bank on Tuesday kicked off a rights issue seeking to raise Sh2.5 billion from its shareholders that will in part finance the purchase of a custody service business from Barclays Bank of Kenya.

Standard Chartered Bank will offer by way of rights 15.1 million new shares at Sh165.45 each on the basis of one new share for every 18 existing shares held.

With Standard Chartered’s already strong securities services business in Asia and expanding coverage in the Middle East, the recent Sh1.8 billion acquisition of Barclays Bank’s custodial business will give Standard Chartered coverage in all its three footprint regions.

An aggressive strategy to grow the bank’s loan book and rev up non funded income remains critical if the bank is to maintain the steady earnings growth witnessed in the last two years.

While most banks have grown their lending books, Standard Chartered along with Barclays Bank have seen theirs drop by Sh6.4 billion and Sh2 billion respectively in the first half of this year.

“As the market sputters back to life, Standard Chartered will have to be more aggressive or lose out to the competition,” said Mr Eric Kimathi, senior research analyst at African Alliance Kenya Securities.

While Kenyan commercial banks can still raise cheap money, they have started to earn less on new loans and investments.

Although low interest rates enable the low cost of funding loans and mortgages, the cash flow on assets eventually begin to re-price and match the low interest rate environment.

And as yields on government securities come down, Kenyan commercial banks which have long benefited from lucrative interest rate spreads will now have to map out innovative ways of growing profitability.

The deposit rate—the interest that banks pay customers for money left in their accounts for a specified period of time— has been declining as the short-term government debt market gets saturated leaving companies and high net worth individuals with loads of cash to keep in the bank.

The decline in deposit rates is also being seen as the product of inactivity in the corporate bond market that has left fewer investment opportunities for holders of large amounts of cash.