Bank subsidiaries surpass last year’s profit in the half to June

Regional subsidiaries of Kenyan banks have surpassed last year’s earnings three months before the end 2012, underlining the importance of the units to the lenders’ bottom lines.

Central Bank of Kenya (CBK) data shows that the 10 banks with subsidiaries in the region had a combined profit of Sh3.8 billion in the nine months to September — which is higher than the Sh2.3 billion they posted last year. They made Sh2.5 billion in the six months to June.

This shows they have intensified the growth that started last year after Uganda operations ate into the earnings of the Kenyan operations in 2010, slowing down profitability. Kenyan banks led by Equity and KCB had opened 269 branches in the region as at September up from 240 in June and 223 in December.

“Growth in profit was mainly supported by the increase in gross loans and advances,” said CBK, adding that South Sudan continues to account for a significant share of the profits.

So far, KCB is the only local bank with regional operations to announce its quarter three results, which showed that profits from the subsidiaries increased to Sh679 million compared to Sh423 million—reflecting a 60.5 per growth.  The branches now account for 7.3 per cent of KCB’s Sh9.3 billion profit compared to 6.6 per cent a year earlier.

CBK shows the share of earnings generated from South Sudan last year accounted for 42 per cent of the Sh2.3 billion profit posted by the branches.

Main drivers

This comes despite Kenyan banks having increasingly focused on the Uganda, which had 113 of the 223 branches of the subsidiaries last year.

Analysts in the banking sector note that fees and commissions from forex trading and other non-lending activities are the main drivers of profitability in South Sudan.

The country relies heavily on imports, creating a huge demand for forex dealers led by the banks.

CFC Stanbic, KCB and Equity Bank are the only local banks with operations in South Sudan.

South Sudan’s promise has caught the attention of more Kenyan banks including Co-op Bank, DTB and Family Bank that are expected to venture there over the next year.

KCB has the largest presence in East Africa, operating in Tanzania, Uganda, Rwanda, and Burundi where it opened shop in May. Equity has operations in the same markets except Burundi.

Kenya’s largest banks have slowed down their local expansion in the past two years, turning focus to the regional market where financial services are largely underdeveloped.

The large market under the East African Common Market protocol has boosted cross-border trade, with the lenders betting on their regional networks to increase earnings from trade finance, forex, and other deals.

Regional subsidiaries broke even last year after returning sluggish performance in the past four years and are now expected to support the parent companies’ growth.