BOA eyes Sh2.3bn for onward lending

PHOTO | FILE Bank of Africa chairman Ambassador Dennis Awori looks on as Bank of Africa managing director Kwame Ahadzi speaks during a loan signing deal on May 15 2013.  NATION MEDIA GROUP

In Summary
In May this year, the bank secured Sh2.1 billion from its shareholder, Dutch Development Bank (FMO) to finance small and medium enterprises in East Africa
Despite the focus on the low end of the market, this segment is high risk and susceptible to interest rate fluctuations

 By JOSHUA MASINDE
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The Bank of Africa plans to raise Sh2.3 billion by 2015 from its shareholders to support onward lending to the retail end of the market. The bank raised Sh1.5 billion this year to boost its loan book as competition for customers in the lower segment intensifies.

Managing director Kwame Ahadzi said the money will be raised from existing owners to contribute to growth capital. “The plan is to grow our loan book as competition among players intensifies. This year, we raised 10 million Euros. We are planning to raise additional 10 million Euros in 2014 and the same amount in 2015,” he said in an interview last week.

In May this year, the bank secured Sh2.1 billion from its shareholder, Dutch Development Bank (FMO) to finance small and medium enterprises in East Africa. FMO has a 20 per cent stake in BOA. Its plan to list on the Nairobi Securities Exchange to raise capital from the market was put on ice in 2011 due to macro-economic challenges that emerged towards the end of the year.

The NSE 20 Share Index reached a two year low as interest rates rose from 13 per cent to over 25 per cent. Inflation had peaked at 18.72 per cent in November last year with the Kenyan shilling on the other hand hitting an all-time low of 107 against the US Dollar. However, the bank will embark on preparations for listing after 2015.

Many commercial banks, including smaller ones which had traditionally cut out a niche in the corporate market, are now shifting focus to retail clients, the bottom of the pyramid and small medium firms.

Mr Ahadzi said the lower segment is the missing middle in the banking industry. “Competition in Kenya is stiff and is in the middle and bottom of the market. The game will be played in the retail market segment. That’s why you see everybody coming down to the bottom,” he said.

But, what does he think of the Kenyan banking industry? He said the market is a lot more sophisticated than other markets in sub-Sahara Africa.

“This market is a lot more mature compared to other markets in this region. If you come here thinking you can replicate what you are doing in another market, you might not get it right,” said the Ghanaian banker who took over as the bank’s head in Kenya in 2009.

He took over when the bank was purely a corporate-oriented market but fierce competition and slim margins within this segment saw it shift focus to the low end and the SME sector, which has since seen its turnaround.

BRANCH OPENINGS

The focus here comes with costs due to the need to establish more brick and mortar branches countrywide. Setting up a single branch costs about Sh21 million with the bank having added 20 outlets in the last four years. The number is set to rise to 31 before the end of the year with plans to open five branches in the next three years.

“Accounts are made and sold in branches, whether you like it or not. So, branch network is very important but we are also considering rolling out agency banking before the end of the year,” he said.

Despite the focus on the low end of the market, this segment is high risk and susceptible to interest rate fluctuations.

Branch expansion has seen customer numbers in the four years increase from 11,000 to 52,000. Another key growth driver for the bank has been the focus on banking chamas (investment groups) who now total 4,000. The bank has mobilised about Sh1 billion from the investment groups and extended lending of about Sh400 million.