Regional expansion lifts bank profits

Banks with regional subsidiaries got a bigger profit boost from their units spread across Eastern Africa in 2012, as strong economic growth in neighbouring countries lifted their performance.

Equity Bank, KCB and CFC Stanbic were among top beneficiaries of the increased regional penetration by Kenyan lenders, going by their recently released annual performance reports.

Equity Bank subsidiaries’ contribution to pre-tax profit rose 7.3 per cent to Sh1.26 billion compared to a growth of 6.1 per cent in 2011. The bank reported an annual pre-tax profit of Sh17.3 billion.

KCB subsidiaries profits before tax grew by 39 per cent to Sh1.4 billion to constitute 8.4 per cent of the group’s Sh17.2 billion earnings up from seven per cent an year earlier.

CFC Stanbic Bank’s South Sudan subsidiary turned profitable within nine months of operation, contributing Sh150 million to the bottom line.

“We see high growth prospects in that market and we plan to open another branch this year,” said CfC Stanbic Bank’s Managing Director Greg Brackenridge.

The lender’s pretax profits stood at Sh4.58 billion in 2012 compared to Sh2.79 billion earned in 2011, a 64 per cent increase. Among Equity Bank’s subsidiaries South Sudan was the star performer with profits growing to Sh1.08 billion from Sh609 million in 2011.

Its Ugandan business which broke even last year saw its profits grow more than three-fold to Sh66 million from Sh19 million.

However Rwanda, a market which Equity entered in the latter part of 2010 and was expected to break even last year took away some shine to the bank group performance sinking deeper in to losses of Sh233 million. Its Tanzanian unit is yet to break even posting a Sh77 million loss in the first year of operation.

Apart from the international subsidiaries Equity Bank also has an insurance business which reported a profit of Sh334 million last year up from Sh224 million and an investment banking arm which reported a Sh1 million loss, an improvement from the Sh89 million loss an year earlier.

The bank has now indicated that it will be seeking to consolidate its presence in its existing markets before launching another round of geographical expansions.

KCB, the largest Kenyan banks in terms of asset base and which has the largest foot print in the region deepened its presence further with four new branches across the region.

“Going forward we purpose to increase profitability from our international businesses so that they contribute at least 25 per cent to the group profits,” said the KCB chairman Musa Ndeto.

As the East African market integration takes root and competition in the Kenyan market heightens, banks have turned to the country’s less developed neighbours for growth by dominating their relatively young financial segment.

Other banks that have opened regional operations include NIC Bank which operates in Tanzania and opened in Uganda mid last year, Commercial Bank of Africa which also operates in the two markets.

Co-operative Bank has entered in to a joint venture with the government of South Sudan to open operations aimed at developing the co-operative movement in the country.

CFC Stanbic has also opened a branch in South Sudan with the aim of offering seamless services to their corporate clients who have operations in the world’s youngest nation.

Others with regional operations include Fina Bank, DTB, Imperial Bank and I & M Bank.

However Kenyan banks have been warned to expand in caution as troubles in the other markets whose economic environment is similar to that of Kenya would drain and possibly cripple the parent institution.

Aware of this risk the finance minister last year changed the Central Bank Act to ensure that lenders with regional operations to disclose the full performance of the subsidiaries in their financial results.

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