High operational costs and low uptake of business is slowing down High operational costs and low uptake of business is slowing down’s march to the profit territory 13 months after it opened doors in Kenya.
Binay Dutta, the bank’s executive director, said the company will post a net loss in its first full year of operation ending December 2010, highlighting challenges start-ups are facing in Kenya’s competitive banking sector.
“We expect the net loss for the full year to be 50 per cent less compared to December 2009,” Mr Dutta told the Business Daily.
The Nigeria-based bank posted a net loss of Sh155.3 million in 2009, though having be in operation for three months, suggesting that the bank will post a loss of about Sh80 million for 2010.
“We are determined to break even this year,” he said, adding that the bank will open a new branch in Mombasa by March to add to the current three branches in Nairobi.
Analysts say that acquisitions and focusing on niche banking is the fastest for start-ups to break even in the sector that has 43 players who are aggressively expanding their reach and product lines.
Islamic banks that were set up in 2008, for instance, started making profits early last year, riding on the pent-up demand for non-interest-based loan, investment, and savings products among the Muslim faithful.
Gulf African Bank, an Islamic bank that set up shop in late 2008 is expected to record a net profit for the year ending December 2010 after posting a net income of Sh42.7 million in the nine months to September, up from a net loss of Sh208.8 million a year earlier.
Mr Eric Musau, an analyst at African Alliance, said acquisitions offer start-ups a quicker route to realising profits as they inherit existing customers, revenues, and avoid the high setup costs.
In 2008, for instance, Eco Bank acquired East African Building Society Bank, leveraging on the institution’s existing clients and branch networks.
UBA is seeking to expand its loan book both in the retail and corporate lending market, hoping to ride on increased consumer spend and business activity in the growing economy.
Kenya’s economy is projected to grow by 5.2 per cent this year from an expected expansion rate of 5 per cent last year, said the World Bank.