[2008-06-30]  NIC Bank links its clients to brokerage arm
NIC Bank customers will now be able to buy and sell shares through the bank following integration of the company’s financial services to include share dealership, foreign exchange and the interest rates markets. Analysts described the move as a forward looking trend that other banking institutions will eventually follow. The concept was pioneered by CFC Stanbic. It is also seen as a warning to stock brokerage firms that Kenyans would more likely trust banks to handle such transactions, especially now that public confidence in stockbrokers has been eroded. It also places the bank ahead of the pack in terms of services diversification, the value it gives to its customers and forms a new source of revenue for the lender. The trend is part of innovation which analysts last year predicted would drive banking industry growth in Kenya. NIC Bank’s director of treasury, Sankul Mandavia, said the service has been running for the past one month. It will, however, be limited to the bank’s customers. The service will be offered through NIC Capital Securities, a brokerage firm and a subsidiary of the NIC Capital, which is an investment bank. The latter bought about 60 per cent of the stockbrokerage firm Solid Securities early this year Section 42 of the Capital Markets Authority authorises investment banks that acquire a majority stake in an NSE licensed stock brokerage house to operate as stockbroker in its own right. NIC Bank will be well placed to tap into the growing enthusiasm for the stock market by small investors in Kenya. Mr. Mandavia said high net investors have been complaining about inadequate information from brokerage firms, disabling their ability to give better buy/sell instructions for their shares. Clients will now not need to first withdraw money from their banks before giving instructions to their stock brokers. The process is done at a single location. So far, the service has been popular with Kenyans in the diaspora, who are able to wire money from abroad and give instructions to centralised office. “This is a global phenomena but which is just starting to happen in Kenya,” said Mr. Mandavia. Banking industry analyst Ochieng Oloo said the trend was likely to pick up but that banks will want to buy into stock brokers rather than get into partnership that may prevent them from offering standardised services to its customers. He said this was also a good opportunity for financially struggling stock brokers to sell part of their stake to banks.

Governance systems
“The advantage for banks is that they have good governance structures while most brokerage firms are individual-led companies with weak governance. Investors feel more secure with their stocks handled by the banks,” said Mr. Oloo. Stock brokerage is a line of business many banks are believed to be pursing to take advantage of Kenya’s growing capital markets. But many are restricted because only members of the Nairobi Stock Exchange, essentially brokerage companies, are allowed to use the bourse’s trading privileges. The option available to banks is to buy into a stockbrokerage firm. But this could end soon if the plan to dilute NSE’s membership and sell shares to interested groups and individuals is effected.

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