Decline noted in Tanzania and Uganda, where six Kenyan banks posted losses.
Despite venturing into the wider East African Community market hoping to replicate their success at home, Kenyan banks are not having it easy.
The Central Bank of Kenya 2017 report says the banks continue to experience mixed fortunes with overall profitability in the regional subsidiaries registering a slight decrease from $86.7 million in 2016 to $85.8 million in 2017.
The decline was noted in Tanzania and Uganda, where six Kenyan banks posted losses.
“Six subsidiaries registered losses before tax. Of these, three operated in Uganda and two in Tanzania indicating the presence of stiff competition and market dominance,” CBK said.
Notably, subsidiaries operating in Rwanda accounted for the highest profits at 29.4 per cent of the total profits, followed by those operating in Uganda at 19.5 per cent and Tanzania at 17.8 per cent.
Nine Kenyan banks have ventured beyond the country’s borders, with a few like Equity Group, I&M Bank #ticker:I&M and Prime Bank expanding beyond EAC boundaries to the DR Congo, Malawi and Botswana.
Some markets, particularly South Sudan and Burundi, have proved volatile due to insecurity.
Currently only Kenya’s KCB Group #ticker:KCB , Equity Group #ticker:EQTY and Co-operative Bank of Kenya #ticker:COOP operate in South Sudan.
The subdued performance of the regional subsidiaries was a further blow for Kenyan banks which experienced a turbulent year in the domestic market due to interest rate capping, unfavourable weather conditions and a prolonged electioneering period.
These impacts resulted in a decline in overall pre-tax profitability of the industry by 9.6 per cent to $1.3 billion in 2017 from $1.4 billion in 2016.
According to CBK, financial technology (fintech) is expected to continue transforming the banking industry and customer experience in the region.
With the advent of fintech, banking is witnessing unprecedented adoption of emerging technologies like blockchain, artificial intelligence, machine learning and big data analytics.
“The integration of digital technology into the banking business will lead to fundamental changes in how the banking sector operates and delivers value to its customers,” said the report.
It added that banks that will embrace innovation and adopt new technologies will have substantial opportunities to change and improve how they provide financial services and products.
“The decrease in profitability was attributed to a higher decrease in income compared to a marginal decrease in expenses,” said the CBK report.
The total assets of Kenyan banks’ subsidiaries in 2017 stood at $5.1 billion compared to $4.3 billion the previous year.
Tanzania accounted for 28.5 per cent of the total assets followed by Uganda at 21.2 per cent, Rwanda 15.6 per cent, South Sudan at 5.9 per cent and Burundi at 1.8 per cent.
During the year, the gross loans stood at $2.8 billion compared with $2.3 billion the previous year, with subsidiaries operating in Tanzania having the highest loan amount at $937.8 million accounting for 33 per cent of the total loans followed by Uganda at 16.7 per cent and Rwanda at 16.5 per cent.
Gross deposits, on the other hand, posted an increase to stand at $3.9 billion compared to $3.4 billion in the previous year as a result of increased mobilisation of deposits by some banks.