Regional units of Kenyan banks double profits

From left: James Mwangi, CEO Equity Bank; KCB CEO Joshua Oigara; Kenya Power CEO Joseph Njoroge; and Bharat Thakrar of Scan Group. Photos/FILE  Nation Media Group

By Special Correspondent The EastAfrican

Regional subsidiaries of Kenyan banks more than doubled their profits in the year ended December, underlining the importance of the units to the lenders’ bottom lines.

Central Bank of Kenya (CBK) data shows that the 11 banks with subsidiaries in the region made a combined profit of Ksh5.1 billion ($60 million) in 2012, up from Ksh2.3 billion ($25 million) the previous year.

Kenyan banks led by Equity and KCB had opened 282 branches in the region as at December 2012, up from 223 in 2011.

READ: Regional expansion pays off for banks, with $42.5m profit

CBK noted that the growth was driven by earnings from South Sudan, since the market accounted for nine per cent of the loans held by the subsidiaries.

“Subsidiaries operating in South Sudan accounted for 47 per cent of the total profits followed by Tanzania at 31 per cent, Uganda 12.5 per cent, and Rwanda 9.6 per cent,” said CBK in its latest industry report.

Analysts in the banking sector note that fees and commissions from forex trading and other non-lending activities were the main drivers of profitability in South Sudan.

The country relies heavily on imports, creating a huge demand for forex dealers, led by the banks. CFC Stanbic, KCB and Equity Bank are the only Kenyan banks with operations in South Sudan. Co-op Bank, DTB and Family Bank are expected to open shop in the country in the next year.

KCB has the largest presence in East Africa, operating in Tanzania, Uganda, Rwanda, and Burundi. Equity has operations in the same markets, except Burundi.

Kenyan banks have slowed national expansion in the past two years, turning to the regional market where financial services are largely underdeveloped. The large market under the East African Common Market Protocol has boosted cross-border trade, with the banks betting on their regional networks to increase earnings from trade, finance, forex and other deals.

Regional subsidiaries broke even in 2011 after returning sluggish performance for nearly four years and are now expected to support the parent companies’ growth.

So far, KCB and Equity are the only local banks with foreign subsidiaries to announce quarter one results.

Profits from KCB’s subsidiaries increased to Ksh474m ($5.5m) compared with Ksh332m ($3.9m) a year earlier, while those of Equity rose to Ksh41m ($4.8m) from Ksh314 million ($3.6m) in the period under review.

READ: Equity Bank unseats KCB as most profitable lender