South Sudan woes pull CfC Stanbic profits to Sh1.96bn
What you need to know:
Also affected
East African Breweries said in late July that its subsidiary was operating two-thirds below capacity
SABMiller plans to cut back operations or shut down subsidiary.
Equity Bank said it would write off bad debts incurred in the country.
The economic impact of South Sudan’s political unrest on Kenyan firms is hitting home with CfC Stanbic Group reporting a 42 per cent slump in half-year net earnings to Sh1.96 billion, attributed to falling revenue from its branches in the volatile country.
A civil war between political factions has badly bruised South Sudan’s economy, disrupting its economic lifeline of oil production. This has resulted in a shortage of foreign currency that is affecting the operations of Kenyan and other international firms that had moved in following the signing of a comprehensive peace deal in 2005.
CfC Stanbic’s South Sudan operation revenue contribution for the half-year ending June fell to about four per cent from 11 per cent in the corresponding period last year, translating to a drop of about Sh710 million.
“One of the areas we operate in is assisting the government of South Sudan with regard to the management of oil revenues and therefore the conflict has severely impacted our business. We have had heavy reliance on business coming out of South Sudan,” CfC Stanbic chief executive officer Philip Odera said yesterday.
“We are however still operational there and still serving customers albeit at a lower level because the economy has substantially shrunk. The revenue slide is significant, both to us and our customers.”
CfC Stanbic’s total income declined by 17 per cent to Sh7.73 billion on the back of a Sh1.64 billion fall in non-interest income to Sh3.34 billion. Trading revenue also fell, by Sh1.07 billion to Sh1.82 billion, due to low liquidity in the Kenyan bonds market and lower foreign exchange volumes in South Sudan.
Transactional fees
The lender however grew its loan book by 28 per cent to Sh100.2 billion during the six-month period, riding on increased customer deposits which went up by 18 per cent to Sh112 billion.
CfC Stanbic’s main line of income in South Sudan is in transactional fees and commissions, and foreign exchange which have declined as the country’s economy has become bogged down. The bank’s net fees and commission income therefore dropped to Sh1.43 billion in the six months to June from Sh1.83 billion a year earlier.
While the bank has not been lending to individuals in South Sudan it does provide trade finance in the country using dollars. Most of the customer deposits are in South Sudanese pounds, meaning that in spite of these deposits growing by 16 per cent in the half year, they cannot be translated into trade finance loans.
Other businesses operating in South Sudan have also reported difficulties tied to the foreign currency crunch facing the country.
East Africa Breweries Ltd said during its full-year results announcement on July 31 that its South Sudan business is currently operating at two-thirds below capacity due to limited access to dollars.
EABL operates a depot in South Sudan’s capital Juba which is supplied with beer and spirits from its Nairobi plant.
SABMiller, the world’s second-largest brewer, last week announced that it had scaled back operations in the country and may have to shut down its $50 million (Sh5 billion) factory that has operated for six years.
“We cannot locally source enough diesel to keep our operations running...and now we do not have enough sufficient forex to run operations and production,” SABMiller managing director Carlos Gomes told AFP.
