Kenyan banks find the going tough in Uganda

Kenyan banks with subsidiaries in neighbouring countries took a hit of more than Sh1.1 billion last year, with Uganda topping the list of loss-making units, a report by the Central Bank of Kenya shows.

Out of Kenya’s 11 banks with operations in Uganda, Tanzania, Rwanda, Burundi and South Sudan, eight reported losses in some of their subsidiaries in the year ended December 2013.

The banks that found the going tough include Equity, NIC, Commercial Bank of Africa (CBA), Bank of Africa (BOA), Imperial and Co-operative.

“Four of the subsidiaries that registered losses before tax were operating in Uganda indicating stiff competition,” said the Central Bank of Kenya Governor Njuguna Ndung’u in the annual 2013 Bank Supervision Report released last week.

Two of the loss-making subsidiaries were in Tanzania, one in South Sudan and another in Rwanda.

The sector regulator attributed the performance to Uganda’s competitive market dominated by established local players. “Some had their subsidiary set up in 2013 and, therefore, still new to the market.”

The 11 Kenyan banks reported total pre-tax profit of Sh5.2 billion from their regional subsidiaries, reflecting flat growth compared to the 2012 earnings of Sh5.1 billion.

Equity Bank’s Rwanda unit posted its third consecutive pre-tax loss of Sh139 million in the year to December 2013, compared to Sh233 million a year earlier and Sh59 million in 2011.

Equity opened shop in Rwanda in 2011 and so far has nine branches, four of them in Kigali.

NIC Bank slipped into the red with a loss of Sh395 million last year from its Tanzanian subsidiary, compared to a profit of Sh150 million in 2012. The results were blamed on a significant increase in the lender’s volume of bad loans.

“This loss was occasioned by a one-time impairment provision for a number of non-performing loans,” said James Ndegwa, the bank’s chairman. NIC increased its stake in the Tanzania unit to 68.97 per cent last year from 51 per cent after investing Sh364 million in a rights issue.

NIC Bank Uganda, wholly-owned by NIC Bank Ltd, stayed in the red with a net loss of Sh555,000 last year compared to a loss of Sh24 million in 2012 when it began operations.

BOA Kenya booked a loss of Sh225.4 million last year from its Uganda operations compared to a profit of Sh294.1 million in 2012. BOA Kenya owns a 50.01 per cent controlling stake in BOA Uganda.

“This may be due to the huge costs associated with new operations such as setting up new branches, deploying IT platform, hiring staff and rolling out ATMs,” said Francis Mwangi, an analyst at Standard Investment Bank.

“The Uganda market was a difficult one last year due to interest rate volatility and growth in non-performing loans. Even established players like Stanbic registered a dip in profits.”

Co-op Bank ventured into South Sudan in September last year with a single branch in Juba, which made a loss of Sh267.3 million in the three months of operations to December 2013.

“It is expected to contribute positively to our profitability from June this year,” said Gideon Muriuki, the group managing director.

The lender holds a 51 per cent stake in the Co-operative Bank of South Sudan, with the remaining 49 per cent owned by the country’s budding co-operative movement.

CBA, majority owned by the Kenyatta family, opened shop in Uganda late last year and its single branch in Kampala is yet to break even.

Imperial Bank’s books appear to show that its Ugandan subsidiary made a loss of about Sh63.5 million given that the Kenyan unit made Sh1.85 billion in net profit last year while the group’s net earnings were Sh1.79 billion.

Imperial Bank owns 63.5 per cent of the Ugandan subsidiary, which began operations in 2011 and currently has five branches.