Companies

Regional subsidiaries boost banks’ third quarter profits

equity bank

Equity Bank branch in Maralal. Kenyan banks with regional presence saw their subsidiaries increase profitability in the second quarter as they reported double digit growth in earnings from their group operations. File

Kenyan banks with regional presence saw their subsidiaries increase profitability in the second quarter as they reported double digit growth in earnings from their group operations.

Equity Bank, Diamond Trust Bank and Kenya Commercial Bank (KCB) — which have been aggressive on regional expansion — reported net profits of Sh594 million, Sh489 and Sh423 from the subsidiaries respectively in the nine months to September, led by their Ugandan operations.

This is a departure from last year’s performance when Uganda’s operations ate into the earnings of the Kenyan operations, slowing down their profitability and dividend payment despite growing local earnings by more than half. Equity Bank and KCB reported net losses of Sh423 million and Sh1.64 billion from the subsidiaries respectively last year.

“All our subsidiaries are making profits. The diversification has started to pay off,” said Equity Bank CEO James Mwangi,
The Diamond Trust Bank echoed the comments.

“About 22 per cent of total earnings were realised from the bank’s subsidiaries in Tanzania, Burundi and Uganda,” said Alkarim Jivan general manager finance and planning at the bank.

The bulk of the Kenyan banks the opened regional subsidiaries over the past four years have been struggling to break even. Equity, which saw its quarter three profit rise 42 per cent to Sh7.2 billion, appears to have made the biggest turnaround.
It made a loss of Sh367 million in the nine months to September 2010 compared this year’s Sh594 million.

The bank has been struggling with the Ugandan unit since it bought Uganda Micro-Finance Limited for Sh1.7 billion in June 2008 and last year the subsidiary sank deeper into losses of Sh769 million compared to a loss of Sh266 million. Its South Sudan subsidiary was on the profit zone last year.

But like Equity, KCB managed a profit of Sh23 million from the regional units in quarter three of 2010, but this increased to Sh423 million this year. This outlook is set to whet Kenyan banks’ appetite for the regional market as opportunities emerge from the East African Community (EAC) common market.

Regional expansion is becoming important as the EAC common market takes shape, opening way for free movement of factors of production in a market of 126 million people.

Kenyan companies are racing to open subsidiaries in the regional countries with banks following suit in an effort to offer seamless banking services in EAC — which has caught the eye of Equity Bank, Fina Bank and Diamond Trust Bank.

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