TANZANIA IS MOST PROFITABLE FOR KENYAN BANK SUBSIDIARIES

In 2015, subsidiaries operating in South Sudan accounted for one-third of the profits, but political instability has affected the country’s business potential.

In Summary

• The latest Central Bank of Kenya Banking Surveillance Report shows that the subsidiaries in Rwanda accounted for 21.29 per cent of the total profits while those in Uganda accounted for 12.64 per cent of the $1.45 billion profits Kenyan banks posted last year.
• Two weeks ago, while releasing Equity Bank’s half-year results, group chief executive James Mwangi said the bank’s regional subsidiaries had doubled their profits, with Uganda growing the fastest — by 139 per cent — followed by Rwanda at 75 per cent.
• KCB Group, which is the region’s largest bank by assets, also saw its customer deposits increase marginally by one per cent to $4.82 billion weighed down by hyperinflation in South Sudan.

5 September 2017 - The Tanzanian market has emerged as most favourable for subsidiaries of Kenyan banks in East Africa, accounting for 35.1 per cent of the total profits drawn from their regional presence.

The latest Central Bank of Kenya Banking Surveillance Report shows that the subsidiaries in Rwanda accounted for 21.29 per cent of the total profits while those in Uganda accounted for 12.64 per cent of the $1.45 billion profits Kenyan banks posted last year.

In 2015, subsidiaries operating in South Sudan accounted for one-third of the profits, but political instability has affected the country’s business potential.

The report also shows that the gross loans of the Kenyan banks’ regional subsidiaries grew to $2.31 billion, compared with $1.95 billion the previous year.

The subsidiaries operating in Tanzania had the highest loan amount, accounting for 36.52 per cent of the total loans. They were followed by the subsidiaries in Uganda at 18.31 per cent, while Rwanda subsidiaries issued 16.77 per cent of these loans.

The gross deposits stood at $3.32 billion, compared with $3.31 billion the previous year.

Deposit concentration

But, despite the subsidiaries operating in Tanzania having the highest deposit concentration, accounting for 30.79 per cent of the total, their contribution dropped by two per cent, compared with 2015.

Uganda was second, with 18.31 per cent of the total deposits, which reflected a drop from 25.2 per cent in 2015.

“Three of the subsidiaries registered losses before tax. Out of the loss-making subsidiaries, two were operating in Uganda — indicating presence of stiff competition and market dominance. One was in South Sudan, where insecurity resulted in volatility and uncertainty in the market,” CBK said.

Tanzania recorded an improvement in this segment, having seen all its subsidiaries return to profitability.

In 2015, two of the subsidiaries that registered losses before tax were operating in Uganda, though one of them had the subsidiary set up in 2013 and was new to the market, while the third loss making subsidiary was in Tanzania.

Equity Bank

Two weeks ago, while releasing Equity Bank’s half-year results, group chief executive James Mwangi said the bank’s regional subsidiaries had doubled their profits, with Uganda growing the fastest — by 139 per cent — followed by Rwanda at 75 per cent.

“The regional subsidiaries have grown to contribute 10 per cent of our total income, from 5 per cent, and it is now our projections that in the next five years, these units outside of Kenya will be contributing 40 per cent,” Mr Mwangi aid.

Hyperinflation

But the bank’s profits from its operations in South Sudan recorded a 125 per cent drop, attributed to the ongoing conflict.

KCB Group, which is the region’s largest bank by assets, also saw its customer deposits increase marginally by one per cent to $4.82 billion weighed down by hyperinflation in South Sudan.

In May this year, KCB announced that it would be closing down some branches as the tough operating environment took its toll on its performance.

The Juba market has in the past four years proved to be a tough operating environment for banks, which saw them scale down their operations. In 2016, seven branches were closed down in this market, mostly by Equity. KCB closed one.

“The KCB Group board has approved the temporary closure of some branches in South Sudan, driven by logistical and operational challenges that have made operating some of these branches unsustainable. A change in the economic situation will lead to a re-assessment of the viability of branches,” the bank said in a statement.

In May, the Equity CEO told shareholders that the bank had closed down seven of their 12 branches in South Sudan due to the war and political uncertainty.

“We have been forced to take this move due to the uncertainty and the country’s economic meltdown. The devaluation saw us write off $58.14 million loss,” Mr Mwangi added.

The East African