Kenyan banks with regional operations saw their Ugandan subsidiaries report losses in 2010, slowing down their profitability and dividend payment despite growing local earnings by more than half.
Equity Bank and KCB—which have been aggressive on the regional expansion drive—reported before tax losses of Sh400 million and Sh1.8 billion from the subsidiaries respectively, led by their Ugandan operations.
Fina Bank is also reported to have turned a loss in Uganda, but it is yet to make public its 2010 results.
The banks reported lower profits for the group compared to that of individual entities as the subsidiaries ate into their operations with analysts pointing a finger at the performance of the Ugandan banking sector that saw nearly half of its financial institutions report losses.
“The divide between the groups’ and banks’ performance has to do with the subsidiaries, especially Uganda’s,” said Francis Mwangi, an analyst at African Alliance.
The Central Bank of Uganda reported that nearly half of the commercial banks reported losses in the nine months to September 2010, attributing the performance to rising operating expenses amid flat income from lending.
The report by Uganda’s central bank said that Kenya’s Equity, Fina and KCB Uganda were among the banks that posted losses in the nine months, adding that the trend will resonate in the end year numbers.
This outlook is set to dim the interest by Kenyan banks to enter the Ugandan market to capture the opportunities emerging from the East African Community (EAC) common market.
Regional expansion is becoming important as the EAC common market takes shape, opening way for free movement of factors of production in a market of 126 million people.
Kenyan companies are racing to open subsidiaries in the regional countries with banks following suit in an effort to offer seamless banking services in EAC.
Equity Bank, which entered the Ugandan market in June 2008 with the acquisition of Uganda Micro Finance Limited for Sh1.7 billion, saw its Kampala subsidiary sink deeper into losses last year.
The bank says in its latest annual report that the Ugandan unit posted a loss of Sh769 million in 2010 compared to a loss of Sh266 million the previous year, which helped push group to Sh8.9 billion compared to Sh9.3 for the bank (Kenyan unit)—whose profits rose from Sh5.5 billion in 2009.
Of Equity’s four active subsidiaries, it’s the Ugandan units and the investment services arm that posted losses.
The services posted a loss of Sh9 million while the Sudan unit broke even to post a before tax profit of Sh349 million compared to a loss of Sh43 million—a pointer of opportunities in South Sudan, which become the world’s newest state in January.
The bank is positioning itself to enter Rwanda and Tanzania this year after it appointed executives for the new subsidiaries.
KCB’s group profit of Sh9.7 billion was lower than that of its Kenyan unit of Sh11.5 billion, which means that the subsidiaries ate Sh1.8 billion from the local unit.
The group is yet to issue its annual report but it has been racing to push its Tanzania, Uganda and Rwanda subsidiaries to the profit zone.
The difference in performance between the group and the Kenyan unit was Sh100 million in 2009 compared to the Sh1.8 billion last year—a signal that the losses from the subsidiaries have deepened.
In 2009, in Southern Sudan it made a profit of Sh84 million and losses of Sh141 million in Tanzania, Sh438 million in Uganda and Sh273 million in Rwanda.