Kenya’s mid-sized banks have stepped up their expansion into East African to tap new opportunities arising from the regional trading bloc and increase their earnings.
Five of Kenya’s 15 mid-sized banks have announced plans to either set up shop or have already opened branches in Uganda and Tanzania over the last two months, following in the footsteps of top-tier banks such as KCB, Equity and Diamond Trust.
Imperial, ABC, Family, Gulf African banks and Bank of India are eyeing the growing list of firms and individuals with business interests in the East Africa Community (EAC), which is gearing for increased business with the formation of the common market.
“The East African integration process has opened more business opportunities which the banks want to capture,” said Mr Vimal Parmar, the head of research at Kestrel Capital.
“Kenya’s neighbours have relatively underdeveloped financial services and the mid-sized banks are rushing there early.”
The banks are also looking for growth opportunities as the structure of the sector has remained skewed to the advantage of top-tier banks, which control 88.6 per cent of the loans market with mid-tier banks accounting for only nine per cent.
“The mid-sized banks are going into the region as they have found it difficult to expand in the Kenyan market dominated by the big banks with larger asset base,” said Renaldo D’Souza, an analyst at Genghis Capital.
Imperial Bank moved to Uganda last week with a single branch in Kampala and is set to open two more branches by May.
“We want to better serve our existing customers who are doing businesses across the national borders,” said Mr Jan Mohamed, the managing director of Imperial Bank.
The Islamic compliant Gulf African Bank—which opened shop in Kenya in 2008— will open branches in Uganda and Tanzania within the next six months, according to its CEO Najmul Hassan, adding that the twin markets offer the bank larger room for growth.
ABC Bank opened two branches in Uganda and announced plans to set up more branches as it mulls moving into Tanzania, Rwanda and Burundi by 2012.
Bank of India, which had operations in Uganda before it was forced to sell out to Bank of Baroda during Idi Amin’s reign, is also planning a return in May, eyeing the growing number of Indian-based firms with operations in the country.
Micro-lender Family Bank, which last year received a Sh1 billion capital injection by a consortium of equity funds, announced it would use part of the cash to seek opportunities in the EAC market.
The East Africa market is becoming increasingly important as the EAC common market takes shape following its kick off in July 2010, opening way for the free movement of factors of production in a market of 126 million persons.
A growing number of mid-sized firms are lining up to join the likes of East Africa Breweries Limited, Crown Berger and East Africa Cables in setting operations in the East Africa countries including Tanzania, Uganda, Rwanda and Burundi.
Local banks have picked cue and are closing buyout deals and opening operations from scratch in an effort to tap into the growing clients with business interests across the region and who require seamless cross border banking services
Banks such as KCB Group, Diamond Trust Bank and Equity Bank have been at the fore-front in pushing the regional agenda as they seek to play catch—up with multinationals Barclays Bank, Standard Chartered Bank and Standard Bank, which have had operations in the five countries that make the EAC.
The quest by the mid-sized banks to get a foothold in these markets comes at a time when they have found it difficult to break the stronghold of the top-tier banks.
The top 10 ranking has remained virtually unchanged for decades despite the entry of top multinational banks such as Bank of Africa and Eco Bank.
Central Bank of Kenya data shows the top 19 banks accounted for Sh49 billion of the Sh49.5 billion profit the entire industry reported in 2009.