South Sudan still rich hunting ground for Kenyan banks

When the South Sudanese Ministry of Labour issued an order to all private entities and NGOs in the country to notify all foreign personnel working for them to give up their jobs from October 15, contrary to expectations listed shares of banks with branches in the country surged.

Kenya Commercial Bank which controls 50 per cent market share of the South Sudan banking industry rose by 3.48 per cent 10 days after the order was circulated to Sh59.5. Its closest rival, Equity Bank rose by 12.9 per cent to Sh57 within the same period. Co-operative Bank climbed three per cent up to Sh20.

This is good news because it suggests the market may have deemed the order as less threatening.

It is possible due to the fact that much of the country’s population is uneducated due to many years of war, traders may have resolved that directive was doomed to fail.

Studies show the country’s literacy rate ranks low compared to its neighbouring countries: 40 per cent for men and 16 per cent for women. More importantly, the newly independent state has now become a major cash cow for the three banks with operations there.

Last year, 52.4 per cent of the total profit before tax from regional subsidiaries or Sh5.2 billion came from South Sudan according to Central Bank of Kenya’s 2013 Bank Supervision Report. The 31 bank branches in the youngest nation in Africa accounted for 22.8 per cent and 8.5 per cent of the total deposits and total loans respectively.

The three banks will continue to perform well even despite of the new capital requirements. Recent directive by the Bank of South Sudan for international banks to increase their paid up capital to Sh2.15 billion by December and a further Sh2.58 billion next year means entry barrier has been lifted even higher.

READ: Kenyan banks face higher capital rules in South Sudan

This means the three Kenyan banks stand a chance to continue to post profits from their South Sudan subsidiaries for a prolonged period owing to their well-capitalised balance sheets. This is especially positive for long-term investors in the three stocks.

Lastly, there is a huge banking opportunity here — 11 million of the country’s population are still unbanked. This is reason enough investors should not be spooked by temporary disruptions.

Although banks mainly rely on forex transactions given that lending is yet to pick up in the young nation, the unbanked population ensures future profitability will still be guaranteed.

With this in mind, it is good to see that Kenyan banks have in the past five years invested heavily in the newly independent state hoping to reap the independence dividend and pioneer benefits.

KCB subsidiary assets are now valued at Sh44.8 billion of the group Sh440 billion total assets. Equity and Coop subsidiary assets are valued at Sh20 billion in total.

From the above, it is evident that KCB, Equity and Coop will continue to remain profitable in the foreseeable future despite the frequent challenges.