Ecobank managing director Tony Okpanachi said the capital injection will help in expansion. Photo/File
Ecobank has received a Sh2 billion capital injection from its Togo-based holding company to finance its expansion plans and lower the cost of raising funds from the market.
The bank said the cash received from the parent company and owner, Ecobank Transnational Incorporated (ETI) would be used to open between five and 10 more branches this year and increase its ATM network.
“The funds will help with our expansion, business growth and address challenges associated with rising cost of funds”, said the bank’s managing director, Tony Okpanachi.
Ecobank opened four new branches last year and added one more in Nairobi’s Karen estate at the start of this year, increasing the lender’s total network to 24.
The bank, which entered the Kenyan market by acquiring mortgage lender East Africa Building Society (EABS), reported Sh202 million net profit last year, from Sh125 million in 2010.
The growth was driven by a 17.7 per cent growth in the loan book to Sh11.3 billion.
The bank is yet to publish its first quarter results for this year, though the management said the expansion costs have weighed on the lender’s performance.
“This has caused a high increase in our interest expenses since we have to pay more for deposits, while at the same time being careful not to pass the increased costs to our customers. The new capital injection is expected to reverse this,” said Mr Okpanachi.
The capital injection follows a $250 million investment by Public Investment Corporation (PIC) of South Africa in Ecobank Transnational Incorporated.
In 2011, Ecobank’s customer deposits remained flat at Sh16.5 billion, but the interest expense on deposits rose by 47 per cent to Sh732 million—indicating the cost banks were willing to bear to attract and retain depositors.
Interest rates rose sharply in the second half of last year after the Central Bank of Kenya increased its policy rate to 18 per cent to stabilise the shilling and tame inflation.
The lenders have continued to face high interest expenses in the first quarter of the year, with those that have released their quarterly performance reporting a jump in interest expenses.
Equity Bank’s interest expenses grew to Sh1.19 billion in quarter one compared to Sh285 million last year. KCB’s shot up from Sh523 million to Sh2.77 billion and StanChart’s costs went up from Sh176.1 million to Sh837.6 million.
Unlike other banks that have sought capital so as to improve their margins above statutory capital requirements, Ecobank’s capital adequacy ratios were double the requirement as at the end of the year.
The parent loan, however, falls in a trend by Kenyan businesses that have recently turned to their parent companies for funds rather than tapping the local market due to high interest rates.
East African Breweries (EABL) also took a Sh19.5 billion loan from its majority shareholder, Diageo, last year to finance the re-purchase of its subsidiary, Kenya Breweries (KBL) from international beer maker SABMiller, at a time when local interest rates had risen up to 30 per cent.
Total Kenya is also seeking Sh5.2 billion from its parent company to clear bank loans.
CFC Stanbic, NIC, DTB and Family Bank have announced plans to raise additional capital from their shareholders to fund local and regional expansion plans.
NIC Bank plans to raise Sh2 billion to fund its expansion to Uganda, while CFC is eyeing South Sudan.
