Kenya’s largest bank by assets, KCB, expects its South Sudan operations to remain profitable despite political turmoil in the country which has disrupted economic activities.
The bank has been forced to close three of its 21 branches in the world’s newest nation after it plunged into chaos in mid-December. However, the lender has its hopes pegged on calm remaining in the country’s capital and financial centre, Juba.
KCB made the disclosure in a conference call with research analysts at Kestrel Capital, allaying concerns that the business which had proved to be highly profitable for the lender would dip into the red.
“Management indicated the bank will continue with its operation in South Sudan and expects to draw positive returns,” said Kestrel Capital in a note to its clients following the conference call.
READ: KCB to continue operations in conflict-hit South Sudan
“The bank will definitely be affected by the disruption of operations in the country but is yet to estimate the impact, which management however advises will be minimal given that the bulk of its business is in Juba which is the key financial state,” it added.
The warring factions in the country signed a ceasefire on Thursday last week, but there is still tension in parts of the vast country.
KCB reported Sh15.2 billion in profit before tax in the six months to June of which South Sudan contributed 9.2 per cent or Sh1.4 billion.
The violence is not expected to have a major impact on the 2013 full-year performance of the lender as it stated in December but the interruption and destruction of businesses could affect this year’s outturn.
There are reports that bank branches in areas controlled by the rebels were looted, which could force the lender to book losses and buy new furniture. KCB’s assets in South Sudan stood at Sh46 billion, being 12.2 per cent of its total asset base.
“The bank attributes the rise of NPLs (non-performing loans) to a number of things including higher NPLs registered in some of the subsidiaries — especially South Sudan- due to poor asset quality,” reads the report by Kestrel.
The bank’s NLPs constituted 8.4 per cent of its total loan book in September, higher than the industry average of 5.4 per cent.
More than 100,000 people including 20,000 Kenyans have fled South Sudan since outbreak of violence, further diminishing consumer activity and business prospects in the country.
READ: Kenya traders’ losses mount as Sudan ceasefire talks stall
KCB controls 42 per cent of the South Sudan commercial banking market, which relies heavily on forex transactions given that lending is yet to pick up in the young nation.
Kestrel notes that the face-off between South Sudan and Sudan over oil exports has also impacted forex income earnings from the country. KCBs’ group forex earnings dropped by six per cent in the nine months to September.
Other Kenyan lenders with operations in South Sudan are Equity, Co-operative, and CfC Stanbic.
READ: How South Sudan is minting money for Kenyan banks
South Sudan has been the best hunting ground for Kenyan lenders accounting for 47 per cent of the Sh5.1 billion profit made by all the banks’ subsidiaries.
Equity has nine branches while Co-operative had opened its maiden unit in Juba before the violence broke out.
The operations of Co-op bank are jointly owned with the government which has a 49 per cent stake in the subsidiary. CfC Stanbic operates a branch in the country. KCB also operates in Tanzania, Uganda, Rwanda and Burundi.
The bank’s share at the NSE Tuesday gained Sh0.25 to trade at Sh46.25, with 712,100 stocks changing hands underlining high investor appetite for the counter.
The bank is expected to post record profit having announced a 14 per cent growth in profit after tax in the nine months to September when it reported Sh10.8 billion.
The bank is riding on mobilising cheap deposits and cutting expenses through restructuring to grow profits. KCB has 5,693 agents and recently launched a mobile platform, M-benki, to mobilise deposits and also disburse micro-loans.