Equity Group Holdings Ltd CEO James Mwangi and Helen Alexander of
ProCredit Holdings board after signing a deal that saw Equity acquire
ProCredit Bank Congo in 2015. FILE PHOTO | NMG
Regional lender Equity Bank is looking for investment
opportunities in Ethiopia as part of its push to become a Pan-African
bank.
Chief executive James Mwangi told The EastAfrican
that the lender with a market capitalisation of Ksh132 billion ($1.32
billion) has restarted its continental expansion plan, which it shelved
in 2016, with the focus now on the Horn of Africa, where it hopes to
acquire an existing bank.
Mr Mwangi said Equity is keen
on economic reforms in Ethiopia as it searches for opportunities for an
acquisition as an entry plan.
“We are focused on
Ethiopia because that market could possibility open in 2020 or 2021. The
entry strategy is through acquisition given that it is a big market. In
big markets, you enter by acquisition,” Mr Mwangi said.
Equity’s
interest in Ethiopia, Africa’s second-most populous nation with more
than 100 million people, is informed by a wave of reforms that Prime
Minister Abiy Ahmed has put in place to open up an economy that has, for
long, been under state control.
Ethiopia has 18
licensed commercial banks, of which Commercial Bank of Ethiopia and
Development Bank of Ethiopia are state-owned.
In 2015, the National Bank of Ethiopia increased the minimum
paid-up capital for banks from 500 million birr ($17 million) to 2
billion birr ($69 million). Banks are expected to comply by June 2020.
It
is argued that 10 small banks holding paid-up capital ranging from 198
million birr ($6.85 million) to 865 million birr ($30 million) will find
it difficult to significantly increase their capital buffer every year
to the requisite 2 billion birr ($69 million), leaving them with the
option of mergers or acquisition.
Restrictions
But Ethiopia has had restrictions in select sectors of the economy, notably financial services, retail and telecommunications.
The
removal of these hurdles would allow seamless integration, cost
reduction, investment expansion and risk-sharing in financial services
across the region.
In 2016, Ethiopian MPs made a
landmark decision to relax the restrictions on the licensing of foreign
financial institutions to operate in the country, presenting a huge
growth opportunity both for both regional and global banks.
As of mid-last year, foreign banks were still not allowed to provide financial services in Ethiopia and the market remained closed to foreign retail banks.
As of mid-last year, foreign banks were still not allowed to provide financial services in Ethiopia and the market remained closed to foreign retail banks.
Ethiopia has allowed some foreign banks to open
liaison offices in Addis to facilitate credit from their countries of
origin. These are Kenya’s KCB and CFC Stanbic, alongside Chinese,
German, Turkish and South African lenders.
Foreign investors see a ray of hope as the government pursues broad economic reforms to liberalise the financial sector.
Kenyan
banks are seeking opportunities in financial services inclusion, to
replicate successful banking models such as mobile and agency banking in
the Ethiopian market.
In 2008, Equity made its first
cross-border expansion by acquiring Microfinance Company of Uganda Ltd
at an estimated $16.6 million.
Its latest acquisition was the Congolese ProCredit Bank at $34 million, giving it presence in the mineral-rich country in 2015.
In
2015, Equity shareholders approved a Ksh20 billion ($200 million) new
capital injection to drive the lender’s ambitious expansion, but in
early 2016 the bank’s board suspended the programme to consolidate its
regional business and restructure underperforming subsidiaries into
moneymaking ventures.
All of Equity’s regional
subsidiaries, save for Tanzania, are now profitable. Last year, the
subsidiaries contributed 15 per cent of the bank’s overall profitability
which grew by five per cent to Ksh19.69 billion ($196.9 million) from
Ksh18.86 billion ($188.6 million) in 2017.
Although
Equity Bank had hoped to enter Ethiopia and Burundi by the end of 2016,
the plan was scuttled both by the suspension and Ethiopia’s legal
framework, which locked out foreign-owned banks from its market.
International lenders opted to enter the economy through representative offices.
All of Equity’s regional subsidiaries, save for Tanzania, have realised profit.
Last
year, the subsidiaries contributed 15 per cent of the bank’s overall
profitability which grew by five per cent to Ksh19.69 billion ($196.9
million) from Ksh18.86 billion ($188.6 million) in 2017.
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