The Co-operative Bank of Kenya is set to invest Sh3.8 billion to establish a subsidiary in South Sudan and open 35 branches in Kenya this year in an expansion drive it expects to significantly grow its top line.
The bank, which follows in the footsteps of KCB, and Equity into Africa’s newest state will spend at least Sh860 million to buy a 70 per cent stake in a bank to be opened in Juba, with South Sudan government owning the remaining 30 per cent.
“We want to take our financial supermarket strategy to South Sudan,” Co-op Bank’s managing director Gideon Muriuki told Business Daily, adding that the bank will pursue retail, corporate and SME banking in the neighbouring country.
Co-op Bank will open four branches in the capital Juba. Family Bank is also expected to venture into South Sudan this year in a joint venture with investors there, signalling the importance of the fledgling market to Kenyan banks.
Mr Muriuki said the bank will seek to replicate its strategy of working with co-operative societies in South Sudan to cut a niche for itself.
The South Sudanese government is expected to later transfer its 30 per cent stake to local co-operative societies after a few years. In Kenya, Co-op has leveraged on the 10,000 co-operative societies with eight million customers to marshal deposits, expand lending and transaction-based income.
Mr Muriuki said its experience in South Sudan will guide its plans to further expand into Tanzania, Uganda, and Rwanda in the medium term. “We are looking at expanding to Uganda, Tanzania, and Rwanda in the next three to five years and that will depend on how our investment in South Sudan takes off,” Mr Muriuki said.
The regional market is becoming increasingly important as the East African Community (EAC) common market takes shape following its kickoff in 2010, paving way for free movement of factors of production in a market of 130 million people. Banks like KCB and Equity that pioneered the venture into the regional market have already started reaping big from their subsidiaries, reducing their reliance on the Kenyan market.
KCB, for instance, earned Sh1.1 billion or 10 per cent of its total net profit from its subsidiaries including South Sudan, Tanzania, and Uganda.
Equity earned Sh552 million or six per cent of its total net profit from its subsidiaries in Uganda and South Sudan. Co-op Bank has already opened five of the 35 branches in Kenya, with the rest expected to be completed by year-end at a total cost of Sh3 billion and intends to raise its agent network to 4,000 in 2012 from the current 1,800.
Co-op is betting on the expansion plans to increase earnings that will cover for the extra expenses. Despite its net profit rising 17 per cent to Sh5.3 billion, Co-op kept its dividend flat at 40 cents per share last year and issued a bonus share of one for every five held to boost the capital for the expansions.