Kenya’s super-size banks rake in huge profits by widening rate spreads

At KenCom House in downtown Nairobi, the race is on to build East Africa’s largest bank.

It was only in 2002 that former KCB boss Terry Davidson divided it into a “good bank and bad bank,” long before these words would be made famous by bankers in New York and London struggling to save the world from the 2008 cash crunch.

Boasting a loan book of $1.6 billion and revenues of $371 million, KCB has come a long way from its days in the corporate graveyard.

In the past five years, its loan book and revenues have grown by a compound annual rate of 27 per cent and 22 per cent, respectively.

The bank now has 203 branches — the widest distribution network in East Africa. Yet KCB became number one in Kenya by a fluke, almost after a nod by Barclays Bank, a rival several streets uptown.

Barclays was too scared to grow at a time when its UK parent company was battling a crisis that could have ended in a forced nationalisation.

To conserve capital and head off a bad loans crisis resulting from a heady expansion that saw it grow its $904 million in 2005 to over $1 billion in 2008, Barclays instead decided to shrink some $205 million in 2009.

It did not even fight hard to attract more deposits, which remained flat at $1.5 billion.

KCB, on the other hand, picked up $479 million in new deposits, which stood at $2.2 billion.

This is almost the size of I&M Bank, Kenya’s 12th largest bank by total assets.

The battle for supremacy between Barclays and KCB in the past decade has been shaped by Kenya’s shifting economic fortunes, competition from other banks, and the global financial crisis.

Local banks saw and seized the opportunity to grow, but foreign owned banks sought self-preservation.

This is a route that Equity Bank took, but with mixed results.

Five years ago, Equity was just emerging from its microfinance roots into just another fast growing mid-sized bank.

However, after selling a 25 per cent stake to a private equity fund managed by Helios for $150 million, its high capital base pushed it into the big league.