Nairobi Securities Exchange announces H1 profit decrease

The Nairobi Securities Exchange (NSE) recently announced a significant decrease in profits for the first half of the year, with net profit falling to 81.96 million shillings. This translates to a 54% drop compared to the 178.58 million shillings recorded in the same period last year. The announcement came as a blow to investors and market observers, signaling challenging times for the exchange. Additionally, consumer goods manufacturer Flame Tree Group also reported a 0.8% decline in net profit to 80.5 million shillings, attributed to a substantial increase in finance costs to 43 million shillings. To shed light on the market movements in the East African region, CNBC Africa interviewed Paul Mwai, the CEO of AIB Capital, who provided valuable insights into the factors influencing the NSE's performance and the broader market dynamics. Mwai highlighted several key issues impacting the NSE, including declining turnover, challenges in the banking sector, and negative investor sentiment. One of the primary reasons cited for the NSE's profit decline was the significant reduction in trading activity, leading to a decline in revenue. Mwai noted that various factors contributed to this decline, such as companies facing challenges, issues in the banking sector, and overall negative investor sentiment. These factors collectively affected the NSE's turnover and profitability. Moreover, Mwai acknowledged that the NSE's investment in diversifying revenue streams had resulted in increasing costs, further impacting profitability. However, he expressed optimism that with market improvements, profitability could rebound to previous levels. Despite the NSE's efforts to diversify through initiatives like the jumps market and REITs market, Mwai pointed out that these ventures had not gained traction as expected. He attributed this to the prevailing negative investor sentiment, which limited interest in alternative investments during a market downturn. While Mwai acknowledged the slow uptake of new products like derivatives, he believed that these initiatives would eventually prove beneficial in the long run. Turning to the banking sector, Mwai discussed liquidity challenges and the impact of the ongoing debate surrounding the interest rate bill. With liquidity movements influenced by factors like tax payments, Mwai highlighted concerns regarding non-performing loans and the uncertainty surrounding interest rate caps. The looming decision on the interest rate bill has left investors cautious, particularly regarding the potential implications for smaller banks that may struggle with liquidity access and profitability. In conclusion, Mwai emphasized the importance of balance sheet growth for banks to enhance profitability, noting that smaller banks could face greater challenges in growing profits due to limitations in deposit growth and lending capacity. As market uncertainties persist, investors are urged to exercise caution and monitor developments closely to navigate the evolving economic landscape.