HSBC raises Nairobi’s profile as financial hub

The logo of UK's biggest banking group, HSBC.
The logo of UK's biggest banking group, HSBC. Photo/FILE 

International banking group HSBC has set up shop in Nairobi, stepping up financial services firms’ race to secure a foothold in East Africa’s budding economies.

The London based banking group said it had acquired a license from the Central Bank of Kenya to open a regional office. “I can confirm we have a rep office in Kenya,” said the bank in a statement on Tuesday.

Visa International, a payment systems services company, announced last week that it will start operations in Nairobi, while US bank JP Morgan Chase said it was also eyeing an office in the Kenyan capital.

Jaap Van Luijk, who has been appointed representative for HSBC Kenya and the east African region, declined to comment on the issue.

He said full details of the operation will be announced in about two weeks.

Increasing trade ties between east African countries and the developed and emerging economies are seen as the main attraction to the region for the international banks.

“There’s a lot of focus on Africa because our senior management sees a significant growth opportunity over the next 10 years and we’re seeing our clients increasingly move here, be it an Indian multinational or a German multinational,” Mr John Coulter, the JP Morgan CEO for Sub-Saharan Africa, told Reuters African Investment Summit on March 7.

Headquartered in London, HSBC is an international banking and financial services organisation with a network that comprises about 7,500 offices in 87 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

It is listed on the London, Hong Kong, New York, Paris, and Bermuda stock exchanges.

Analysts said HSBC will be looking to offer transactional banking services such as foreign exchange and trade finance to its clients.

HSBC’s entry will enhance Nairobi’s claim to a regional financial hub status, backing recent intentions by Treasury to establish an exclusive financial district in the capital.

The bank’s entry will also open a window for more foreign investors.

“It will be good for other market players,” said Suntra Investment Bank chief executive Michael Gichohi, adding that the move is not surprising since Kenya is becoming attractive to foreign investors wanting to venture into the continent.

Other international investment banks that have set up shop include Russian investment bank Renaissance Capital, and Pan African investment group African Alliance.

Renaissance Capital bought the license of defunct stockbroker Francis Thuo and Partners in 2007.

Mr Gichohi said there is still space for more entrants.

Mr Andrew Franklin, the managing director of Franklin Management, said the move is good for the Kenyan market if it results in higher inflows of international investments.

Faida Investment Bank chief executive Bob Karina said HSBC might opt to venture into investment banking by buying out a local operator.

The bank has, however, not applied for any licenses from the Capital Markets Authority.

NIC Bank bought a 55 per cent stake in Solid Investment Securities and renamed the firm NIC Capital in 2009.

ABC Bank bought 86 per cent of Crossfield Securities which became ABC Capital in the same year.

Co-operative Bank bought 60 per cent of troubled Bob Mathews Stockbrokers in 2009 and renamed it Kingdom Securities.

The buyout has, however, turned sour after former directors sued Co-operative Bank for Sh31.8 million in December last year.

HSBC’s foray

An analyst, who declined to be named due to the sensitive nature of the issue, said banks buying stockbrokers was becoming unpopular due to unforeseen after-sale liabilities.

HSBC’s foray into Kenya comes at a time when the Nairobi Stock Exchange (NSE) is on a bearish run, sinking to levels last seen in April 2010.

Mr Franklin said that it was unlikely that the bank’s entry would have an immediate impact on the market.

Analysts said that rising inflation and weakening of the shilling against major currencies were making Kenya an unattractive market for foreign investors.

Commercial banking is another option for HSBC investors. But analysts said that investing in the sector is unattractive since it has dominant local players.

At $188 billion in market capitalisation, HSBC dwarfs Barclays ($59 billion) and StanChart ($40 billion).