Kenyan lenders eye $6bn Somalia economy, hold licensing talks

The Barakaat Bank of Somalia. Somalia has six banking institutions with an asset base of $194 million. FILE PHOTO | AFP 

By ALLAN OLINGO

In Summary

• KCB Group and Commercial Bank of Africa (CBA) are among Kenyan lenders eyeing the Somalia market, as Mogadishu seeks to put up a dependable financial system that can attract more banks into the country.
• Qatar National Bank is also among lenders awaiting a licence after successfully setting up shop in South Sudan in 2014.
• Somalia is slowly becoming an investment focus after it announced that it could start oil and gas production in 2020.

KCB Group and Commercial Bank of Africa (CBA) are among Kenyan lenders eyeing the Somalia market, as Mogadishu seeks to put up a dependable financial system that can attract more banks into the country.

Mogadishu is also gearing up for oil and gas production in the next three years.

A year ago, the Kenyan and Somalia governments signed the Joint Commission on Co-operation Agreement in financial regulation, investments and security.

In an interview with Bloomberg, Governor of the Central Bank of Somalia Bashir Issa Ali said that he has held licensing talks with KCB Group and CBA, which are competing with Gulf lenders seeking to operate in Somalia, where a paltry 4 per cent of the population is banked.

“Banking is one of the most promising sectors in Somalia and these banks are expressing interests. We will license only reliable lenders who are willing to partner with local financial institutions,” said Mr Ali.

Somalia, which has suffered decades of war and political strife, has largely been without a dependable banking system through that time. The country’s population of about 12 million people has largely depended on the blackmarket and money transfer firms that handle close to $1.5 billion annually in remittances.

High political risk

It is, however, not clear what strategy the two Kenyan lenders will employ to enter into the Somalia market, with its high political risk. It is understood that the Qatar National Bank is among lenders awaiting a licence after successfully setting up shop in South Sudan in 2014.

Last year, Equity Bank also announced its intention to enter the Somalia market but did not offer details on the timelines.

KCB Group CEO Joshua Oigara told The EastAfrican that KCB’s entry into new markets is part of the lender’s 2015-2019 strategic plan, with no imminent markets under consideration.

“Somalia is part of the plan and nothing has been decided on the market at this point in time,” said Mr Oigara.

In April, the KCB chief executive had said that the lender may consider entering the Democratic Republic of Congo, Somalia and Djibouti by 2020 as it seeks to strengthen its position in East Africa.

Somalia is slowly becoming an investment focus after it announced that it could start oil and gas production in 2020.

Last year, Somalia President Hassan Sheikh Mohamoud announced that his country is in discussions with BP Plc, Royal Dutch Shell and Exxon Mobil Corp over oil and gas exploration. It will need a sophisticated financial banking system to accommodate the investment flow that the mining sector will attract.

13 pending licences