Bear market eats Kenya’s stockbrokers’ 2015 profits

Brokers on the trading floor of the Nairobi Securities Exchange. PHOTO | FILE 

By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com

IN SUMMARY

• The industry reported a cumulative net profit decline of 35 per cent to Sh823.5 million from Sh1.26 billion in 2014.
• Industry insiders mainly blamed the steep rise in interest rates from the drop in trading volumes and the subsequent withering of brokerage commissions.

A tough operating environment saddled by high interest rates and a surge in inflation saw 16 out of Kenya’s 21 stockbrokers’ 2015 profits drop, according to financial reports published by close of last week.

The industry reported a cumulative net profit decline of 35 per cent to Sh823.5 million from Sh1.26 billion in 2014, as revenues shrank with a steady rise in expenses and the fall in brokerage commissions with reduced trading volumes.

Industry insiders mainly blamed the steep rise in interest rates from the drop in trading volumes and the subsequent withering of brokerage commissions.

“The cost of doing business continued to rise, including marketing, research, compliance as well as IT… overall we did not see any major changes in the market other than rising interest rates hurting trading volumes,” said Kestrel Capital chief executive officer Andre DeSimone.

Stellar performers in 2014 such as Dyer & Blair Investment Bank, Suntra Investment Bank, Apex Africa Capital and Old Mutual 
Securities saw their net profits fall by between 92 and 151 per cent.

Former market leader Dyer & Blair fared badly after losing control of the bond market with the exit of its bond trading gurus Norris Kibe and Gibson Gichaga who moved to rival Faida Investment Bank.

Dyer & Blair reported a net profit of Sh1.8 million compared to Sh178 million in 2014 – a more than 95 per cent drop in earnings showing the extent of its battering in the marketplace.

READ: Jimnah Mbaru back at Dyer helm after CEO quits

Apex Africa’s net earnings fell from Sh166.1 million in 2014 to Sh11.7 million last year, Suntra’s reported Sh10.8 million from Sh122.9 million the previous year while Old Mutual Securities returned a net loss of Sh38 million last year from 2014’s Sh74.5 million.

The five largest stockbrokers, Kestrel Capital, SBG Securities, Equity Investment Bank (EIB), Renaissance Capital (Rencap) and African Alliance, however, leaned heavily on foreign trading desks to mitigate some of the difficulties on the local front.

Smaller brokers, who largely rely on local retail business bore the brunt of the market downturn, having lost more than half their impressive 2014 profit numbers as local investors kept off the cooling market.

Interest rates rose steeply, especially in the second half of 2015, while inflationary pressure kept up as food and transport costs rose during the El Nino rains that persisted into December.

Overall, brokerage commissions for the industry fell by 16 per cent to Sh3.1 billion in line with the fall in traded volumes on the back of the capital gains disruptions and falling market valuations.

In 2014, the commissions rose 23 per cent, setting up the stockbrokers for a bumper earnings year.

The NSE’s bond market turnover also fell last year to Sh305 billion compared to Sh506 billion 2014, eating further into the brokerage commissions that form the backbone of the brokers’ earnings