KCB’s subsidiaries added Sh332 million to the group net earnings up from last year’s Sh130 million, a 155 per cent growth compared to the local operation whose profits increased by 27.3 per cent. Photo/FILE
Regional subsidiaries of Kenyan commercial banks recorded higher growth in profits in the first three months of the year than the local operations, underlining their growing impact on the lenders’ bottom line.
KCB’s subsidiaries added Sh332 million to the group net earnings up from last year’s Sh130 million, a 155 per cent growth compared to the local operation whose profits increased by 27.3 per cent.
The faster growth in regional businesses saw their contributions to group earnings grow to 13.6 per cent, up from 10.4 per cent as at the end of 2011.
Equity Bank’s subsidiaries’ contribution grew by 73.4 per cent to Sh314 million compared to the Kenyan banking business’ growth of 8.1 per cent. Subsequently, their input to group earnings increased to 11.9 per cent from 5.3 per cent as at the close of last year.
“South Sudan contributed seven per cent of the group profits and we are optimistic that Rwanda will break even this year after only a year in operation,” said Equity Bank’s CEO James Mwangi, during a first quarter investor briefing.
A sharp increase in lending rates last year shrank the lender’s loan books, whose initial effects were visible in the first quarter results released so far.
Regional subsidiaries of the Kenyan lenders broke even last year after returning sluggish performances in the past four years and are now expected to support the parent companies’ growth especially during these difficult times in the Kenyan market.
The KCB chief executive, Mr Martin Odour-Otieno, said he expected the bank’s performance to improve this year, riding on faster growth by regional entities. He, however, noted that the Kenyan business would remain the main contributor to the bottom line.
“These businesses were not generating income but only recovering set up costs. Now that they have broken even that’s why you see the significant jump in their earnings,” said Francis Mwangi, a research analyst with Standard Investment Bank.
In the local market, banks have had to contend with dampened appetite for credit following a rise in interest and inflation rates since late last year that have reignited fears of massive loan defaults.
NIC, which said it was setting aside Sh916 million to enter the Ugandan market after Tanzania, is the only one of the lenders that have announced results so far to have its subsidiaries’ contribution decline to Sh17.1 million from Sh27.2 million.
The management, however, said the drop was attributable to the brokerage subsidiary, whose commissions were subdued due to low activity on the stock market and investment banking arm which was yet to contribute.
“For NIC Capital, their income is erratic; though they have some deals in the pipeline they are not closed yet so we’ll book the income in the future,” said Mr James Macharia, the managing director of NIC Group.
Market players attributed the growth to increase in branch network across the new markets while appreciating the intense competition.
“From our experience, it is not that there is no competition in those markets.
There are greater returns from the subsidiaries and their contribution is expected to increase because they are also increasing their footprint in those markets,” said Alkarim Jiwa, chief financial officer at DTB.
Tanzania, an economy smaller than Kenya, has more than 40 banking institutions, making it more competitive, said Mr Jiwa.
DTB intends to raise capital through a rights issue to strengthen their subsidiaries in Uganda, Tanzania and Burundi.
Mr Mwangi has also stated that Equity Bank will not be seeking further expansion but will concentrate on growing its presence in the markets it is already operating in. It operates in Uganda, Tanzania, South Sudan and Rwanda.
The higher yields in the regional markets have made other banks to start eyeing regional expansion.
Family Bank, CFC and Standard Chartered Bank were said to be raising capital to allow them expand in the region, with CFC eyeing South Sudan corporate market. Co-op Bank is in talks with the South Sudan to partner in opening a subsidiary in the world’s youngest nation.
“We could have already set up in South Sudan but our company mission does not allow us as we are not merely profit-driven but have to grow co-operatives,” said Gideon Muriuki, CEO of Co-operative Bank.
