The Kenya Commercial Bank is set to apply for a licence next week to enter the Burundi market, which will make it the only bank in the region to have operations in all six eastern African countries.
James Agin, the chief business officer in charge of KCB’s regional subsidiaries, said the lender will lodge an application for licence with Burundi’s banking sector regulator next week.
High buyout prices on increased interest from Kenyan, West Africa and South Africa investors has prompted local banks such as KCB to start regional operations from scratch.
“We have already received clearance from the Central Bank of Kenya to open a subsidiary in Burundi,” Mr Agin said in an interview on the sidelines of the ongoing East African Community (EAC) summit in Arusha.
KCB will initially spend about Sh656 million ($8 million) to open “one or two branches” in Bujumbura, the capital city—making it the fifth subsidiary after Tanzania, South Sudan, Uganda and Rwanda.
“We did a cost-benefit analysis and opted for a Greenfield operation,” said Mr Agina.
An acquisition provides an easy solution compared to starting from scratch, which could involve hiring local staff, seeking regulatory approval, getting depositors and fighting for market share against established rivals.
Burundi is the smallest economy of all the five EAC member countries, emerging from a long-running civil conflict that has held back development of its financial sector.
Agriculture accounts for more than half of Burundi’s economy, of which coffee is the top export crop earning more than three-quarters of its foreign exchange income.
Mr Agin said the relatively under-developed financial system provides an opportunity to offer universal banking focusing on retail customers, SMEs and companies.
Kenyan banks have been branching out into the region to grow their earnings and cut their reliance on the local market and tap the benefits of the East Africa common market.
DTB Group is already operational in Burundi, while Equity, NIC and I&M also have subsidiaries outside Kenya.
The regional market is becoming increasingly important following the formation of the East African Community (EAC) common market, creating room for free movement of factors of production in a market of 130 million people.
The regional subsidiaries have provided a major boost particularly for KCB and Equity after they returned to profit last year after heavy losses in 2010.
KCB posted a net profit of Sh400 million from the subsidiaries in the nine months to September compared to a loss Sh1.7 billion in 2010.
The bank will report its full year results tomorrow after 45 per cent increase in net profit to Sh6.4 billion in quarter three.
“All our subsidiaries were profitable as at the third quarter of last year, we feel time is right to enter the Burundi market now,” said Mr Agin.