A KCB banking hall. The bank was the first Kenyan bank to start regional expansion. Photo/FILE
What you need to know:
Uganda’s financial sector stability report published by the country’s central bank shows that Kenyan lenders’ average payback to shareholders as measured by the return on equity (ROE) ratio was 31.2 per cent as at June, over 10 percentage points more than Uganda’s 20.4 per cent and double Tanzania’s 15.1 per cent
Rwanda’s banks returned 9.9 per cent to their shareholders while Burundi’s was the lowest at five per cent
Kenyan banks pay the highest returns to shareholders compared to other East African lenders, helped by lower operating costs, a report by Bank of Uganda shows.
Uganda’s financial sector stability report published by the country’s central bank shows that Kenyan lenders’ average payback to shareholders as measured by the return on equity (ROE) ratio was 31.2 per cent as at June, over 10 percentage points more than Uganda’s 20.4 per cent and double Tanzania’s 15.1 per cent.
Rwanda’s banks returned 9.9 per cent to their shareholders while Burundi’s was the lowest at five per cent.
Private investors have been angling for a piece of the highly profitable Kenyan banking sector through active trading at the bourse while some have bought into non-listed lenders.
In the nine months to September the Kenyan lenders posted a 14.5 per cent increase in profits to record Sh92.5 billion putting it on course to surpassing the 2012 full-year record profit of Sh107.8 billion.
Uganda’s industry recorded higher average return on assets, 4.7 per cent, than Kenya’s 3.9 per cent, which was attributed to higher interest rates charged on loans.
“Their higher return on assets is a reflection of higher interest rates while the lower return to equity is also attributable to them having lower debt levels,” said ABC Capital manager for corporate finance and advisory, Johnson Nderi.
Kenyan banks have been able to outdo their regional peers by riding on higher operating efficiencies.
Ugandan banks use an average of 72.4 per cent of their income to meet operational costs compared to Kenya’s 51 per cent which allows Kenyan lenders to record higher returns to investors.
Kenya’s banking industry has relied on technological investments and new initiatives such as the introduction of agency banking, regional cash centres and the cheque truncation system to cut costs.
Kenyan banks have borrowed heavily from development partners on which they incur interest costs, with the remaining sum marked as a return to investors.
The borrowing helps the banks to avoid taking on highly priced deposits while also providing them with long-term funds to lend.
Lenders in the two countries have been under pressure to reduce the interest spreads that they enjoy, which have been the main drivers of their profitability.
“The profits made by banks since 2012 were driven by high net interest margins. While margins increased as the central bank rate (CBR) rose in 2012, banks were slow to re-price variable rate loans to reflect the fall in the CBR in the period to June 2013,” said Bank of Uganda governor Emmanuel Tumusiime-Mutebile in the report.
The Kenyan lenders have also been courting investors as they seek capital injections to help them meet new minimum capital requirements.
Some of the deals conducted in the industry recently include the purchase of a 70 per cent stake in Fina Bank by Nigerian Guaranty Bank and a Sh900 million investment in Chase Bank by Amethis Capital of France.
The Kenyan lenders have also been expanding in the region. There are nine Kenya banks operating in Uganda, seven in Tanzania, four in Rwanda and two in Burundi.
KCB, the first Kenyan lender to expand beyond the country’s border started operations in Tanzania in 1997 before opening operations in Uganda 10 years later.
But the Ugandan outfit contributes more to KCB’s bottomline, 1.3 per cent compared to Tanzania’s 0.1 per cent.
Ugandans are better debt-payers ,with the country’s non-performing loans being four per cent of the total loans compared to Kenya’s 5.3 per cent. Burundi has the highest default rate of 10.1 per cent, followed by Tanzania’s 8.1 per cent and Rwanda’s 6.9 per cent.
